City of San Antonio - MuniOS

Loading...
PRELIMINARY REMARKETING MEMORANDUM Dated: December 1, 2016

This Preliminary Remarketing Memorandum and the information contained herein are subject to completion or amendment. Under no circumstances shall this Preliminary Remarketing Memorandum constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.

NOT A NEW ISSUE – Book-Entry-Only

RATINGS:

See "RATINGS" herein

In the Original Opinion (hereinafter defined), Co-Bond Counsel (hereinafter defined) rendered an opinion, assuming continuing compliance by the City (hereinafter defined) after the date of initial delivery of the Bonds (hereinafter defined) with certain covenants contained in the Ordinance (hereinafter defined) and subject to the matters set forth under “TAX MATTERS” herein, that interest on the Bonds for federal income tax purposes under existing statutes, regulations, published rulings, and court decisions (1) would be excludable from the gross income of the owners thereof pursuant to section 103 of the Internal Revenue Code of 1986, as amended to the date of initial delivery of the Bonds, and (2) would not be included in computing the alternative minimum taxable income of individuals or, except as described herein, corporations. Co-Bond Counsel will (in accordance with the Ordinance), render an opinion to the Paying Agent / Registrar (defined below) that the remarketing of the Bonds that is the subject of this Remarketing Memorandum will not adversely affect the excludability of interest on the Bonds for federal income tax purposes. The Remarketing Agent (defined below) will be allowed to rely on such opinion. See “TAX MATTERS” herein. Additionally, see THE BONDS – Interest During the Current Term Mode Interest Period” identifying circumstances when an opinion of nationally recognized bond counsel is required as a condition for an interest rate mode conversion. Co-Bond Counsel expresses no opinion as to the effect on the excludability from gross income for federal income tax purposes of any action requiring such an opinion.

$123,670,000* CITY OF SAN ANTONIO, TEXAS ELECTRIC AND GAS SYSTEMS VARIABLE RATE JUNIOR LIEN REVENUE REFUNDING BONDS, SERIES 2015A CONVERSION TO TERM RATE PERIOD OF 3* YEARS AT A PER ANNUM TERM RATE OF ___% (PRICED TO YIELD ___% TO MANDATORY TENDER DATE) Originally Dated: January 1, 2015 (Interest accrues from the hereinafter defined Date of Delivery)

Mandatory Tender Date: December 1, 2019 (or first Business Day thereafter)* Maturity Date: February 1, 2033

The Bonds. The City of San Antonio, Texas (the "City"), on January 7, 2015, issued its Electric and Gas Systems Variable Rate Junior Lien Revenue Refunding Bonds, Series 2015A (the "Series A Bonds" or "Bonds"), pursuant to an ordinance, adopted by the City Council of the City on October 30, 2014 ("Ordinance"), for the purposes of refinancing existing variable rate debt of the City and paying the costs of issuance of the Bonds. The Bonds are currently outstanding in the aggregate principal amount of $125,000,000. On December 14, 2016, $125,000,000 in Bonds will be tendered for purchase, and $123,670,000* in Bonds will be remarketed in a Term Mode (defined herein) to provide proceeds to pay the purchase price of the aforementioned mandatorily tendered Bonds (see "THE BONDS – Bond Provisions – Authority for the Bonds"). The Bonds are issued in fully-registered form only, without coupons, in denominations of $5,000 (or any integral multiple thereof) while in a Term Mode (see "THE BONDS – General" herein). No physical delivery of the Bonds will be made to the owners thereof. Principal of, premium, if any, and interest on the Bonds is payable by U.S. Bank National Association, Dallas, Texas, as paying agent / registrar, to Cede & Co., which makes distribution of the amounts so paid to the beneficial owners of the Bonds (see "THE BONDS – Bond Provisions – Book-Entry-Only System" herein). Interest. The Bonds are multi-modal variable rate bonds, that were initially issued in a SIFMA Index Mode effective January 7, 2015, and expiring on December 13, 2016 by election of the City. The Bonds are being remarketed in a Term Mode having a duration of 3* years (accruing interest through November 30, 2019*; such interest period applicable to the Bonds, as remarketed, the "Current Term Mode Interest Period") and, upon the conclusion thereof, will again be remarketed into a successive Interest Mode of a to-be-determined duration. During the Current Term Mode Interest Period, the Bonds will bear interest at a Term Rate equal to ____%. See the table appearing on page ii of this Remarketing Memorandum for a description of the Bonds’ Term Rate during the Current Term Mode Interest Period, as well as the Current Term Mode Interest Period’s effective date, ending date, mandatory tender date, Stepped Rate (defined herein), and CUSIP Number applicable to the Bonds, as remarketed. As the Bonds will be remarketed into a Term Mode, interest on the Bonds during the Current Term Mode Interest Period will be calculated on the basis of a 360-day year of twelve 30-day months and will be payable on each February 1 and August 1, commencing February 1, 2017, along with an irregular final interest payment on the Bonds on December 1, 2019* (being the day immediately following the last day of the Current Term Mode Interest Period). Tenders; Redemption. At the conclusion of the Current Term Mode Interest Period, the Bonds are, on December 1, 2019*, subject to mandatory tender, without right of retention by the Holders thereof (subject to the description below under "No Liquidity Support"), but such mandatory tender and purchase shall actually occur on December 2, 2019* (which is the First Business Day on or after the scheduled tender date). During the Current Term Mode Interest Period, the Bonds are not subject to optional or mandatory tender. The Bonds are not subject to redemption during the Current Term Mode Interest Period, but are subject to redemption (at the option of the City) on the interest payment date that immediately succeeds the expiration of the Current Term Mode Interest Period. See "THE BONDS – Conversion of Interest Modes (Including Current Conversion); Mandatory Tender; Purchase of Tendered Bonds" and "THE BONDS - Redemption of Bonds". No Liquidity Support. During the Current Term Mode Interest Period, the Bonds are not subject to the benefit of a liquidity facility provided by a third party. Accordingly, a failure by the Remarketing Agent (defined herein) to remarket the Bonds subject to mandatory tender at the end of the Current Term Mode Interest Period will result in the rescission of the notice of mandatory tender with respect thereto and the City not having any obligation to purchase such mandatorily-tendered Bonds at that time. The occurrence of the foregoing will not result in an event of default under the Ordinance or the Bonds. Until such time as the City redeems or remarkets such Bonds that have not been successfully remarketed as described above, those Bonds shall bear interest at the "Stepped Rate", which is identified on page ii of this Remarketing Memorandum, calculated on the basis of a 365 or 366-day year and the number of days actually elapsed. See "THE BONDS - Conversion of Interest Modes (Including Current Conversion); Mandatory Tender; Purchase of Tendered Bonds – Mandatory Tender" herein. Tender; Remarketing. All tenders of Bonds must be made to U.S. Bank National Association, Dallas, Texas, as tender agent for the Bonds (the "Tender Agent"). In the Ordinance, the City has reserved the right to appoint a substitute remarketing agent for the Bonds (which is not required to be the Remarketing Agent identified below) prior to the commencement of the requisite remarketing period applicable to the Bonds and to occur before the expiration of the Current Term Mode Interest Period. Bonds tendered for purchase at the conclusion of the Current Term Mode Interest Period will be bought from the proceeds derived from the remarketing of such Bonds, if any; provided, however, that should the date for tender of the Bonds occur on an Interest Payment Date (defined herein), the accrued interest portion of the Purchase Price (defined herein) is to be paid by the City. Security. The Bonds are special obligations of the City payable solely from and equally and ratably secured, together with the currently outstanding Junior Lien Obligations and any Additional Junior Lien Obligations hereafter issued by the City, by a junior lien on and pledge of the Net Revenues of the City's Electric and Gas Systems (as further described herein, the "Systems"), subject and subordinate to liens and pledges securing the outstanding Senior Lien Obligations and any Additional Senior Lien Obligations hereafter issued, and superior to the pledge and lien securing the currently outstanding Commercial Paper Obligations and Inferior Lien Obligations, all as fully set forth in the Ordinance. The City has reserved the right to grant equal and ratable liens on and pledges of Net Revenues to secure payment of Additional Junior Lien Obligations hereafter issued in accordance with the Ordinance (see "THE BONDS – Bond Provisions - Authority and Security for the Bonds"). Conversion. The Ordinance provides that the Bonds are, at the conclusion of the then-effective interest rate mode (other than the Fixed Mode, but including the Current Term Mode Interest Period), subject to conversion to another interest rate mode. If the Bonds are converted, in whole or in part, to an interest rate mode other than another Term Mode, a SIFMA Index Mode (defined herein), or a Fixed Mode (defined herein), the City anticipates entering into an agreement providing liquidity support for those Bonds at such time. No such agreement, however, has been entered into at this time, nor is one expected to be entered into in the future. The Bonds were originally delivered to the initial purchasers together with the approving opinion of the Attorney General of the State of Texas and the approval of certain legal matters by Norton Rose Fulbright US LLP (formerly Fulbright & Jaworski L.L.P.), and Escamilla & Poneck, LLP, of San Antonio, Texas, as Co-Bond Counsel. The remarketing of the Bonds will, through the services of DTC, be available for delivery on December 14, 2016 (the "Date of Delivery"). In connection with the remarketing of the Bonds, certain legal matters will be passed upon for the Remarketing Agent by its counsel, McCall, Parkhurst & Horton L.L.P., San Antonio, Texas.

_________________________________________________ *Preliminary, subject to change.

JEFFERIES

CURRENT TERM MODE INTEREST PERIOD INFORMATION

CITY OF SAN ANTONIO, TEXAS ELECTRIC AND GAS SYSTEMS $123,670,000* Variable Rate Junior Lien Revenue Refunding Bonds, Series 2015A Current Term Mode Interest Period commences on December 14, 2016 Term Mode Expiration*

Mandatory Tender Date(1)*

Term Mode Interest Rate (%)

Yield(2) (%)

Stepped Rate (%)*

CUSIP No.(3)

Nov. 30, 2019

Dec. 1, 2019

_____

_____

8.00

796253___

The Bonds have a stated maturity date of February 1, 2033. The Bonds are subject to mandatory sinking fund redemption in the amounts and at the times provided in the Ordinance and as described herein under the subcaption "THE BONDS – Redemption of Bonds", but none of which occur during the Current Term Mode Interest Period. In addition, all or part of the Bonds of a particular series may be subject to redemption prior to stated maturity, and prior to the expiration of a then-current and applicable interest rate mode, if such redemption provisions are preserved at the time of conversion of such Bonds to the then-applicable interest rate mode. During the Current Term Mode Interest Period, the Bonds are not subject to optional redemption prior to the expiration of such Current Term Mode Interest Period. The Bonds are, however, subject to optional redemption on the Interest Payment Date (defined herein) immediately following the expiration of the Current Term Mode Interest Period or on any date during such time the Bonds are bearing interest at the Stepped Rate. See "THE BONDS – Redemption of Bonds". (1) Mandatory tender to occur on indicated date or on the next occurring Business Day thereafter (which is December 2, 2019). (2) The yield shown for the Bonds is calculated to December 1, 2019*. (3) CUSIP numbers have been assigned to the Bonds by CUSIP Global Services, managed by S&P Capital IQ on behalf of The American Bankers Association, and are included solely for the convenience of the owners and potential owners of the Bonds. No assurance can be given that the CUSIP number for the Bonds will remain the same after the date of delivery of such series of Bonds. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. None of the City, the Board, the Co-Financial Advisors, nor the Remarketing Agent shall be responsible for the selection, changes to, errors, or correctness of the CUSIP numbers set forth herein. _________________________________________________

*Preliminary, subject to change.

LL

      &217$&7,1)250$7,21     

&LW\3XEOLF6HUYLFH%RDUG

7HQGHU$JHQWDQG 3D\LQJ$JHQW5HJLVWUDU  86%DQN1DWLRQDO$VVRFLDWLRQ 0U,VUDHO/XJR 1RHO5RDG6XLWH 'DOODV7;   ,VUDHOOXJR#XVEDQNFRP

  &36(QHUJ\ 0V/LQGD5']LHU]DQRZVNL 6HQLRU'LUHFWRU)LQDQFH 7UHDVXU\ 0DLO'URS 32%R[ 6DQ$QWRQLR7;   OUG]LHU]DQRZ#FSVHQHUJ\FRP    

    

  

 >7+(5(0$,1'(52)7+,63$*(,17(17,21$//</()7%/[email protected]  

LLL



  

 &,7<2)6$1$1721,27(;$6  &,7<&281&,/  ,Y\57D\ORU0D\RU 

5RQ1LUHQEHUJ Rey Saldaña 0LNH*DOODJKHU 

5REHUWR7UHYLño 6KLUOH\*RQ]DOHV 5D\/RSH] $ODQ:DUULFN,,

5HEHFFD9LDJUDQ &ULV0HGLQD -RH.ULHU 

 



6KHU\O6FXOOH\–&LW\0DQDJHU %HQ*RU]HOO-U–&KLHI)LQDQFLDO2IILFHU /HWLFLD09DFHN–&LW\&OHUN $QGUHZ6HJRYLD–&LW\$WWRUQH\    

&,7<38%/,&6(59,&(%2$5'2)6$1$1721,2  

(GZDUG%.HOOH\&KDLUPDQ +RPHU*XHYDUD-U7UXVWHH

-RKQ76WHHQ-U7UXVWHH

'HUULFN+RZDUG9LFH&KDLUPDQ ,Y\57D\ORU0D\RU



 3DXOD<*ROG:LOOLDPV–3UHVLGHQW &(27UHDVXUHU )UDQN7$OPDUD]–7UHDVXUHU6HQLRU9LFH3UHVLGHQW–6WUDWHJ\ &RPPHUFLDO2SHUDWLRQV &DURO\Q(6KHOOPDQ(VT–6HFUHWDU\&KLHI/HJDO $GPLQLVWUDWLYH2IILFHU    

&2168/7$176  1RUWRQ5RVH)XOEULJKW86//3 (VFDPLOOD 3RQHFN//3 &R%RQG&RXQVHO 

3XEOLF)LQDQFLDO0DQDJHPHQW,QF )LUVW6RXWKZHVWD'LYLVLRQRI+LOOWRS6HFXULWLHV,QF (VWUDGD+LQRMRVD &RPSDQ\,QF &R)LQDQFLDO$GYLVRUV

     BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB    1DPHG&LW\$WWRUQH\RQ$XJXVWDQGEHJDQRQ$XJXVW 





LY



86(2),1)250$7,21  )RU SXUSRVHV RI FRPSOLDQFH ZLWK 5XOH F DV DPHQGHG RI WKH 8QLWHG 6WDWHV 6HFXULWLHV DQG ([FKDQJH &RPPLVVLRQ 5XOHF DQGLQHIIHFWRQWKH GDWH RIWKLV3UHOLPLQDU\5HPDUNHWLQJ0HPRUDQGXPWKLVGRFXPHQWFRQVWLWXWHVDQ RIILFLDOVWDWHPHQWRIWKH&LW\ZLWKUHVSHFWWRWKH%RQGVWKDWKDVEHHQGHHPHGILQDOE\WKH&LW\DVRILWVGDWHH[FHSWIRU WKHRPLVVLRQRIQRPRUHWKDQWKHLQIRUPDWLRQSHUPLWWHGE\5XOHF  1R GHDOHU EURNHU VDOHVPDQ RU RWKHU SHUVRQ KDV EHHQ DXWKRUL]HG E\ WKH &LW\ WR JLYH DQ\ LQIRUPDWLRQ RU WR PDNH DQ\ UHSUHVHQWDWLRQZLWKUHVSHFWWRWKH%RQGVRWKHUWKDQDVFRQWDLQHGLQWKLV5HPDUNHWLQJ0HPRUDQGXPDQGLIJLYHQRUPDGH VXFKRWKHULQIRUPDWLRQRUUHSUHVHQWDWLRQVPXVWQRWEHUHOLHGXSRQDVKDYLQJEHHQDXWKRUL]HGE\WKH&LW\7KLV5HPDUNHWLQJ 0HPRUDQGXPGRHVQRWFRQVWLWXWHDQRIIHUWRVHOORUDVROLFLWDWLRQRIDQRIIHUWREX\QRUVKDOOWKHUHEHDQ\VDOHRIWKH%RQGV E\ DQ\ SHUVRQ LQ DQ\ MXULVGLFWLRQ LQ ZKLFK LW LV XQODZIXO IRU VXFK SHUVRQ WR PDNH VXFK RIIHU VROLFLWDWLRQ RU VDOH  7KH LQIRUPDWLRQ DQG H[SUHVVLRQV RI RSLQLRQV KHUHLQ DUH VXEMHFW WR FKDQJH ZLWKRXW QRWLFH DQG QHLWKHU WKH GHOLYHU\ RI WKLV 5HPDUNHWLQJ0HPRUDQGXPQRUDQ\VDOHPDGHVKDOOXQGHUDQ\FLUFXPVWDQFHVFUHDWHDQ\LPSOLFDWLRQWKDWWKHUHKDVEHHQQR FKDQJHLQWKHLQIRUPDWLRQRURSLQLRQVVHWIRUWKKHUHLQDIWHUWKHGDWHRIWKLV5HPDUNHWLQJ0HPRUDQGXP6HH&217,18,1* ',6&/2685( 2) ,1)250$7,21 IRU D GHVFULSWLRQ RI WKH XQGHUWDNLQJ RI WKH &LW\ DQG WKH %RDUG WR SURYLGH FHUWDLQ LQIRUPDWLRQRQDFRQWLQXLQJEDVLV  7+(%21'6$5((;(037)5205(*,675$7,21:,7+7+(81,7('67$7(66(&85,7,(6$1'(;&+$1*( &200,66,21 $1' &216(48(17/< +$9( 127 %((1 5(*,67(5(' 7+(5(:,7+  7+( 5(*,675$7,21 48$/,),&$7,2125(;(037,212)7+(%21'6,1$&&25'$1&(:,7+$33/,&$%/(6(&85,7,(6/$: 3529,6,2162)7+(-85,6',&7,216,1:+,&+7+(6(%21'6+$9(%((15(*,67(5('48$/,),('25 (;(037('6+28/'127%(5(*$5'('$6$5(&200(1'$7,21)257+(385&+$6(7+(5(2)  ,1 &211(&7,21 :,7+ 7+,6 2))(5,1* 7+( 5(0$5.(7,1* $*(17 0$< 29(5$//27 25 ())(&7 75$16$&7,216:+,&+67$%,/,=(250$,17$,17+(0$5.(735,&(2)7+(%21'6$7$/(9(/$%29( 7+$7 :+,&+ 0,*+7 35(9$,/ ,1 7+( 23(1 0$5.(7  68&+ 67$%,/,=,1* ,) &200(1&(' 0$< %( ',6&217,18('$7$1<7,0(  7KH 5HPDUNHWLQJ $JHQW KDV SURYLGHG WKH IROORZLQJ VHQWHQFH IRU LQFOXVLRQ LQ WKLV 5HPDUNHWLQJ 0HPRUDQGXP  7KH 5HPDUNHWLQJ$JHQWKDVUHYLHZHGWKHLQIRUPDWLRQLQWKLV5HPDUNHWLQJ0HPRUDQGXPLQDFFRUGDQFHZLWKDQGDVSDUWRI LWV UHVSRQVLELOLWLHVWRLQYHVWRUVXQGHUWKHIHGHUDOVHFXULWLHVODZVDVDSSOLHGWRWKHIDFWVDQGFLUFXPVWDQFHVRIWKLVWUDQVDFWLRQEXW WKH5HPDUNHWLQJ$JHQWGRHVQRWJXDUDQWHHWKHDFFXUDF\RUFRPSOHWHQHVVRIVXFKLQIRUPDWLRQ  7KH&R)LQDQFLDO$GYLVRUVKDYHSURYLGHGWKHIROORZLQJVHQWHQFHIRULQFOXVLRQLQWKLV5HPDUNHWLQJ0HPRUDQGXP7KH&R )LQDQFLDO$GYLVRUVKDYHUHYLHZHGWKHLQIRUPDWLRQLQWKLV5HPDUNHWLQJ0HPRUDQGXPLQDFFRUGDQFHZLWKDQGDVSDUWRIWKHLU UHVSRQVLELOLWLHV WR WKH %RDUGDQG DV DSSOLFDEOH WR LQYHVWRUV XQGHU WKH IHGHUDO VHFXULWLHV ODZV DV DSSOLHG WR WKH IDFWV DQG FLUFXPVWDQFHV RI WKLV WUDQVDFWLRQ EXW WKH &R)LQDQFLDO $GYLVRUV GR QRW JXDUDQWHH WKH DFFXUDF\ RU FRPSOHWHQHVV RI VXFK LQIRUPDWLRQ  1RQHRIWKH&LW\WKH%RDUGWKH&R)LQDQFLDO$GYLVRUVRUWKH5HPDUNHWLQJ$JHQWPDNHVDQ\UHSUHVHQWDWLRQRUZDUUDQW\ ZLWKUHVSHFWWRWKHLQIRUPDWLRQFRQWDLQHGLQWKLV5HPDUNHWLQJ0HPRUDQGXPUHJDUGLQJ7KH'HSRVLWRU\7UXVW&RPSDQ\RULWV %RRN(QWU\2QO\6\VWHP  7KHDJUHHPHQWVRIWKH&LW\WKH%RDUGDQGRWKHUVUHODWHGWRWKH%RQGVDUHFRQWDLQHGVROHO\LQWKHFRQWUDFWVGHVFULEHG KHUHLQ1HLWKHUWKLV5HPDUNHWLQJ0HPRUDQGXPQRUDQ\RWKHUVWDWHPHQWPDGHLQFRQQHFWLRQZLWKWKHRIIHURUVDOH RIWKH%RQGVLVWREHFRQVWUXHGDVFRQVWLWXWLQJDQDJUHHPHQWZLWKWKHSXUFKDVHUVRIWKH%RQGV  7+( &29(5 3$*( &217$,16 &(57$,1 ,1)250$7,21 )25 *(1(5$/ 5()(5(1&( 21/< $1' ,6 127 ,17(1'('$6$6800$5<2)7+,62))(5,1*,19(672566+28/'5($'7+((17,5(5(0$5.(7,1* 0(025$1'80 ,1&/8',1* $// $33(1',&(6 $77$&+(' +(5(72 72 2%7$,1 ,1)250$7,21 (66(17,$/720$.,1*$1,1)250(',19(670(17'(&,6,21  1(,7+(57+(81,7('67$7(66(&85,7,(6$1'(;&+$1*(&200,66,21125$1<67$7(6(&85,7,(6 &200,66,21+$6$33529('25',6$33529('2)7+(%21'6253$66('83217+($'(48$&<25 $&&85$&<2)7+,6'2&80(17$1<5(35(6(17$7,21727+(&2175$5<,6$&5,0,1$/2))(16(      Y

 7$%/(2)&217(176   

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

 *RRJOH)LEHU2SWLF,QIUDVWUXFWXUH3URJUDP 6PDUW*ULG0RGHUQL]DWLRQ3URJUDP 4XDOLILHG6FKHGXOLQJ(QWLW\ 7UDQVPLVVLRQ6\VWHP 'LVWULEXWLRQ6\VWHP ,QWHUFRQQHFWHG6\VWHP ([WHUQDO(YHQWV,PSDFWLQJ1XFOHDU3RZHU*HQHUDWLRQ,QGXVWU\DQG 673DQG673DQG&36(QHUJ\ V5HVSRQVH 8VHG1XFOHDU)XHO0DQDJHPHQW $GGLWLRQDO*HQHUDWLRQ2SSRUWXQLWLHV 1XFOHDU *HQHUDWLQJ6WDWLRQ(YHQWV %UDXQLJ 'HHO\ 5LR1RJDOHV 6RPPHUV 6SUXFH 673 673 )XHO6XSSO\ *DV6\VWHP 7UDQVPLVVLRQ6\VWHP +HDWK&RQVXOWDQWV–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

YL

Compliance with Prior Undertakings ......................................................... 88 LEGAL MATTERS .......................................................................................... 88 TAX MATTERS ............................................................................................... 89 General ....................................................................................................... 89 Tax Changes ................................................................................................. 90 Tax Accounting Treatment of Premium Bonds ............................................. 90 LEGAL INVESTMENTS IN TEXAS .............................................................. 90 SECURITIES LAWS ........................................................................................ 91

RATINGS ......................................................................................................... 91 CO-FINANCIAL ADVISORS.......................................................................... 91 SETTLEMENT OF REMARKETING ............................................................. 91 INDEPENDENT AUDITORS .......................................................................... 91 USE OF INFORMATION IN REMARKETING MEMORANDUM ............... 92 MISCELLANEOUS ......................................................................................... 92

Appendix A – City of San Antonio, Texas-General Demographic and Economic Information ..........................................................................A-1 Appendix B – City Public Service - Basic Financial Statements for the Fiscal Years Ended January 31, 2016 and 2015 and Independent Auditors' Report .................................................................................... B-1 Appendix C – Certain Provisions of the Ordinance ....................................... C-1 Appendix D – Original Opinion of Co-Bond Counsel...................................D-1

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

vii

>7+,63$*(,17(17,21$//</()7%/[email protected]

5(0$5.(7,1*0(025$1'80 

5HODWLQJ7R 

  &,7<2)6$1$1721,27(;$6(/(&75,&$1'*$66<67(06 9$5,$%/(5$7(-81,25/,(15(9(18(5()81',1*%21'66(5,(6$ 

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–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–%XLOG$PHULFD%RQGV (OHFWULFDQG*DV6\VWHPV-XQLRU/LHQ5HYHQXH5HIXQGLQJ%RQGV7D[DEOH6HULHV% 'LUHFW 6XEVLG\–%XLOG$PHULFD%RQGV (OHFWULFDQG*DV6\VWHPV9DULDEOH5DWH-XQLRU/LHQ5HYHQXH5HIXQGLQJ%RQGV6HULHV$ (OHFWULFDQG*DV6\VWHPV9DULDEOH5DWH-XQLRU/LHQ5HYHQXH5HIXQGLQJ%RQGV6HULHV%(OHFWULFDQG*DV6\VWHPV9DULDEOH 5DWH -XQLRU /LHQ 5HYHQXH5HIXQGLQJ%RQGV6HULHV& WKH 6HULHV&%RQGV  (OHFWULFDQG*DV6\VWHPV-XQLRU/LHQ 5HYHQXH%RQGV6HULHV(OHFWULFDQG*DV6\VWHPV-XQLRU/LHQ5HYHQXH%RQGV6HULHV(OHFWULFDQG*DV6\VWHPV-XQLRU /LHQ5HYHQXH5HIXQGLQJ%RQGV6HULHV(OHFWULFDQG*DV6\VWHPV-XQLRU/LHQ5HYHQXH5HIXQGLQJ%RQGV6HULHV%DQG (OHFWULFDQG*DV6\VWHPV9DULDEOH5DWH-XQLRU/LHQ5HYHQXH%RQGV6HULHV&DQG(OHFWULFDQG*DV6\VWHPV9DULDEOH5DWH -XQLRU /LHQ 5HYHQXH %RQGV 6HULHV '  ,QFOXVLYH RI WKH %RQGV DV UHPDUNHWHG WKH &LW\ QRZ KDV RXWVWDQGLQJ -XQLRU /LHQ 2EOLJDWLRQVZLWKDQDJJUHJDWHSULQFLSDODPRXQWRI   7KH-XQLRU/LHQ2EOLJDWLRQVDUHVHFXUHGE\DOLHQRQDQGSOHGJHRIWKH1HW5HYHQXHVRIWKH&LW\ VHOHFWULFDQGJDVV\VWHPV WKH 6\VWHPV MXQLRUDQGLQIHULRUWRWKHOLHQWKHUHRQDQGSOHGJHWKHUHRIVHFXULQJWKHSD\PHQWRIWKH6HQLRU/LHQ2EOLJDWLRQV GHILQHG LQWKH%RQG2UGLQDQFHVWRPHDQJHQHUDOO\WKRVH&LW\REOLJDWLRQVSD\DEOHIURPDILUVWOLHQRQDQGSOHGJHRIWKH1HW5HYHQXHVRI WKH6\VWHPV DQGDUHFXUUHQWO\RXWVWDQGLQJLQDQDJJUHJDWHSULQFLSDODPRXQWRI,QDGGLWLRQWR$GGLWLRQDO6HQLRU /LHQ2EOLJDWLRQV DVGHILQHGLQWKH%RQG2UGLQDQFHV WKH%RQG2UGLQDQFHVSHUPLWWKHLVVXDQFHRIDGGLWLRQDOREOLJDWLRQVRIWKH &LW\SD\DEOHIURPDOLHQRQDQGSOHGJHRIWKH1HW5HYHQXHVRQSDULW\ZLWKWKHOLHQWKHUHRQDQGSOHGJHWKHUHRIVHFXULQJWKH WKHQ RXWVWDQGLQJ-XQLRU/LHQ2EOLJDWLRQV VXFKDGGLWLRQDOREOLJDWLRQVWKH$GGLWLRQDO-XQLRU/LHQ2EOLJDWLRQV LIFHUWDLQKLVWRULFDO HDUQLQJVWHVWVDQGRWKHUFRQGLWLRQVDUHVDWLVILHG6HH7+(%21'6–%RQG3URYLVLRQVDQG-81,25/,(12%/,*$7,216 KHUHLQ 

7KH %RQG 2UGLQDQFHV DOVR SHUPLW WKH &LW\ WR LVVXH REOLJDWLRQV SD\DEOH IURP D OLHQ RQ DQG SOHGJH RI WKH 1HW 5HYHQXHV WKDW LV VXERUGLQDWHDQGLQIHULRUWRWKHOLHQWKHUHRQDQGSOHGJHWKHUHRIVHFXULQJWKHSD\PHQWRIWKH-XQLRU/LHQ2EOLJDWLRQV VXFKVXERUGLQDWH OLHQREOLJDWLRQVDUHLGHQWLILHGLQWKH2UGLQDQFHDVWKH&RPPHUFLDO3DSHU2EOLJDWLRQVDQGWKH,QIHULRU/LHQ2EOLJDWLRQVDVVXFK WHUPVDUHKHUHLQDIWHUGHILQHG EXWWKH%RQG2UGLQDQFHVSURYLGHWKDWRWKHUWKDQWKHFXUUHQWO\RXWVWDQGLQJ6HQLRU/LHQ2EOLJDWLRQV DQGDQ\$GGLWLRQDO6HQLRU/LHQ2EOLJDWLRQVKHUHDIWHULVVXHGQRREOLJDWLRQVRIWKH&LW\VKDOOEHLVVXHGWKDWDUHSD\DEOHIURPDOLHQ RQDQGSOHGJHRIWKH1HW5HYHQXHVRIWKH6\VWHPVWKDWLVVHQLRUDQGVXSHULRUWRWKHOLHQWKHUHRQDQGSOHGJHWKHUHRIVHFXULQJWKH SD\PHQWRIWKHFXUUHQWO\RXWVWDQGLQJ-XQLRU/LHQ2EOLJDWLRQVDQGDQ\$GGLWLRQDO-XQLRU/LHQ2EOLJDWLRQVKHUHDIWHULVVXHG     BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB

3UHOLPLQDU\VXEMHFWWRFKDQJH 

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

7+(%21'6 

DESCRIPTION OF THE BONDS 

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
3UHOLPLQDU\VXEMHFWWRFKDQJH 

 

RIWKH%RQGV6HH7+(%21'6–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–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–0DQGDWRU\7HQGHUKHUHLQ   7KH&LW\KDVQRWDFTXLUHGDOLTXLGLW\IDFLOLW\WRSURYLGHOLTXLGLW\VXSSRUWIRUWKH%RQGVQRULVRQHFXUUHQWO\FRQWHPSODWHG WREHDFTXLUHGLQWRLQWKHIXWXUH  RECORD DATE DURING THE CURRENT TERM MODE INTEREST PERIOD  'XULQJWKH&XUUHQW7HUP5DWH,QWHUHVW3HULRGDQGZKLOHWKH%RQGVDUHLQD7HUP0RGHWKHUHFRUGGDWHIRUGHWHUPLQLQJWKHSDUW\ WRZKRPLQWHUHVWRQWKH%RQGVLVSD\DEOHRQDQ\LQWHUHVWSD\PHQWGDWH WKH5HFRUG'DWH LVWKHFORVHRIEXVLQHVVRQWKHILIWHHQWK GD\RIWKHSUHFHGLQJFDOHQGDUPRQWK

CONVERSION OF INTEREST MODES (INCLUDING CURRENT CONVERSION); MANDATORY TENDER; PURCHASE OF TENDERED BONDS        8SRQFRQFOXVLRQRIWKH&XUUHQW7HUP0RGH,QWHUHVW3HULRGWKH&LW\LVSHUPLWWHGWRFKDQJHWKH PRGHIRUDOORUDQ\SRUWLRQRIWKH%RQGVWRDGLIIHUHQWPRGHRUWRD7HUP0RGHRIGLIIHUHQWGXUDWLRQ DQGLIWKHQHZLQWHUHVWUDWH PRGHLVD7HUP0RGHRU6,)0$,QGH[0RGHWRGHVLJQDWHWKHGXUDWLRQRIVXFKLQWHUHVWUDWHSHULRG 7KH%RQGVDWWKHFRQFOXVLRQ RIWKH&XUUHQW7HUP0RGH,QWHUHVW3HULRGDUHVXEMHFWWRPDQGDWRU\WHQGHUZLWKRXWULJKWRIUHWHQWLRQ      -HIIHULHV//& -HIIHULHV KDVEHHQDSSRLQWHGWRVHUYHDVWKH5HPDUNHWLQJ $JHQWIRUWKH%RQGV7KHRIILFHRI-HIIHULHV//&IRUSXUSRVHVRILWVGXWLHVDV5HPDUNHWLQJ$JHQWLV0DGLVRQ$YHQXHUG )ORRU1HZ
3UHOLPLQDU\VXEMHFWWRFKDQJH 

3XUVXDQWWRDQGVXEMHFWWRWKHWHUPVDQGFRQGLWLRQVRIWKH5HPDUNHWLQJ$JUHHPHQWGDWHGDVRI0D\ EXWHIIHFWLYHDVRI 'HFHPEHU EHWZHHQ WKH &LW\DQG -HIIHULHVLQLWVFDSDFLW\DV5HPDUNHWLQJ $JHQWIRUWKH %RQGVLQFRQQHFWLRQ ZLWKWKH UHPDUNHWLQJRIWKH%RQGVLQWRWKH&XUUHQW7HUP0RGH,QWHUHVW3HULRGKDVDJUHHGWRSURYLGHILUPILQDQFLDODUUDQJHPHQWVIRUVXFK UHPDUNHWLQJRI%RQGV)RUWKLVVHUYLFH-HIIHULHVZLOOEHFRPSHQVDWHGDVGHVFULEHGKHUHLQXQGHUWKHVXEFDSWLRQ6(77/(0(17 2)5(0$5.(7,1*2)7+(%21'6  8QGHUWKH2UGLQDQFHWKH&LW\LVSHUPLWWHGWRDSSRLQWDTXDOLILHGILQDQFLDOLQVWLWXWLRQWRVHUYHDVDVXEVWLWXWH5HPDUNHWLQJ$JHQW DFFRUGLQJO\WKHUHLVQRJXDUDQW\WKDW-HIIHULHV//&ZLOOVHUYHDV5HPDUNHWLQJ$JHQWZKHQWKH%RQGVLQWKH&XUUHQW7HUP0RGH ,QWHUHVW3HULRGZLOOEHVXEMHFWWRPDQGDWRU\WHQGHU       7KH%RQGVDUHQRWVXEMHFWWRRSWLRQDORUPDQGDWRU\WHQGHUGXULQJWKH&XUUHQW7HUP0RGH,QWHUHVW 3HULRG7KH%RQGVDUHKRZHYHUVXEMHFWWRPDQGDWRU\WHQGHU ZLWKRXWULJKWRIUHWHQWLRQ DWWKHFRQFOXVLRQRIWKH &XUUHQW7HUP 0RGH,QWHUHVW3HULRGSURYLGHGWKDWZKHQWKHUHH[LVWVQR/LTXLGLW\)DFLOLW\UHODWLQJWRWKH%RQGVZKLFKLQFOXGHVWKH%RQGVLQWKH &XUUHQW7HUP0RGH,QWHUHVW3HULRGDIDLOXUHWRUHPDUNHWVXFK%RQGVVXEMHFWWRPDQGDWRU\WHQGHUZLOOQRWFRQVWLWXWHDQHYHQWRI GHIDXOWXQGHUHLWKHUWKH2UGLQDQFHRUWKHDIIHFWHG%RQGVWKHPVHOYHVDQGLQVXFKLQVWDQFHWKHPDQGDWRU\WHQGHULVGHHPHGUHVFLQGHG XQWLOWKH5HPDUNHWLQJ$JHQWLVDEOHWRUHPDUNHWRUWKH&LW\UHGHHPVWKHDIIHFWHG%RQGVDOOLQDFFRUGDQFHZLWKWKH2UGLQDQFH  $VVWDWHGDERYHWKH%RQGVGXULQJWKH&XUUHQW7HUP0RGH,QWHUHVW3HULRGDUHQRWEHQHILWWHGE\D/LTXLGLW\)DFLOLW\SURYLGHGE\ D WKLUG SDUW\ $FFRUGLQJO\ D IDLOXUH E\ WKH 5HPDUNHWLQJ $JHQW WR UHPDUNHW %RQGV VXEMHFW WR PDQGDWRU\ WHQGHU RQ WKH 5DWH $GMXVWPHQW'DWH GHILQHGKHUHLQ DWWKHHQGRIWKH&XUUHQW7HUP0RGH,QWHUHVW3HULRGZLOOUHVXOWLQWKHUHVFLVVLRQRIWKHQRWLFHRI PDQGDWRU\WHQGHUZLWKUHVSHFWWKHUHWRDQGWKH&LW\ZLOOQRWKDYHDQ\REOLJDWLRQWRSXUFKDVHVXFK%RQGVDWWKDWWLPH7KHRFFXUUHQFH RIWKHIRUHJRLQJZLOOQRWUHVXOWLQDQHYHQWRIGHIDXOWXQGHUWKH2UGLQDQFHRUWKH%RQGV8QWLOVXFKWLPHDVWKH&LW\UHGHHPVRU UHPDUNHWVVXFK%RQGVWKDWKDYHQRWEHHQVXFFHVVIXOO\UHPDUNHWHGDVGHVFULEHGDERYHVXFK%RQGVVKDOOEHDULQWHUHVWDWWKH6WHSSHG 5DWHEHLQJWKHSHUDQQXPUDWHRILQWHUHVWWKHQDSSOLFDEOHWRVXFKXQUHPDUNHWHG%RQGVVSHFLILHGRQSDJHLLKHUHRIFDOFXODWHGRQ WKHEDVLVRIDRUGD\\HDUDQGWKHQXPEHURIGD\VDFWXDOO\HODSVHG   'HSHQGHQWXSRQWKH%RQGV WKHQFXUUHQWLQWHUHVWPRGHDQGDSSOLFDEOHWHUPVRIVDOHWKH%RQGVDUHVXEMHFWWR WHQGHUZKHWKHURSWLRQDORUPDQGDWRU\ DQGLIPDQGDWRU\ZLWKRUZLWKRXWULJKWRIUHWHQWLRQE\WKH+ROGHUVWKHUHRIDVVSHFLILHGE\ WKH&LW\ RQWKHGD\LPPHGLDWHO\VXFFHHGLQJWKHGD\RIFRQFOXVLRQRIWKHFRQFOXGLQJLQWHUHVWPRGH ZKLFKLVWKHGD\WKDWWKHQHZ LQWHUHVWUDWHRUUDWHVLVDSSOLFDEOHWRWHQGHUHGDQGUHPDUNHWHG%RQGVVXFKGDWHWKH5DWH$GMXVWPHQW'DWH XQOHVVVXFK5DWH $GMXVWPHQW 'DWH LV QRW D %XVLQHVV 'D\ LQ ZKLFK FDVH WKH %RQGV DUH VXEMHFW WR PDQGDWRU\ WHQGHU RQ WKH ILUVW %XVLQHVV 'D\ WKHUHDIWHU   7KH %RQGV LQ WKH &XUUHQW 7HUP 0RGH ,QWHUHVW 3HULRG DUH VXEMHFW WR PDQGDWRU\ WHQGHU ZLWKRXW ULJKW RI UHWHQWLRQ RQ 'HFHPEHU    EXW VXFK PDQGDWRU\ WHQGHU DQG SXUFKDVH VKDOO DFWXDOO\ RFFXU RQ 'HFHPEHU    ZKLFKLVWKHILUVW%XVLQHVV'D\RQRUDIWHUWKHVFKHGXOHGWHQGHUGDWH (DFKRZQHURI%RQGVZLOOEHUHTXLUHGWRWHQGHUDQGLQ DQ\HYHQWZLOOEHGHHPHGWRKDYHWHQGHUHGVXFK%RQGV RUWKHDSSOLFDEOHSRUWLRQWKHUHRIGHVFULEHGEHORZ WRWKH7HQGHU$JHQWIRU SXUFKDVHDWDSXUFKDVHSULFHHTXDOWRRIWKHSULQFLSDODPRXQWSOXVDFFUXHGLQWHUHVWLIDQ\ SD\DEOHIURPWKHOLPLWHGVRXUFHV RIIXQGVGHVFULEHGEHORZ  7KH7HQGHU$JHQWLVUHTXLUHGWRJLYHQRWLFHRIPDQGDWRU\WHQGHUWRHDFKUHJLVWHUHGRZQHURIWKH%RQGVDIIHFWHGWKHUHE\E\PDLO ILUVWFODVVSRVWDJHSUHSDLGQRWPRUHWKDQQRUOHVVWKDQGD\VZKLOH%RQGVDUHLQD7HUP0RGH ZKLFKLQFOXGHVWKH&XUUHQW 7HUP0RGH,QWHUHVW3HULRG :KLOHWKH%RQGVDUHUHJLVWHUHGLQWKHQDPHRI&HGH &RRQO\&HGH &RZLOOUHFHLYHVXFKQRWLFH IURPWKH7HQGHU$JHQW6HH7+(%21'6–%RQG3URYLVLRQV–%RRN(QWU\2QO\6\VWHPKHUHLQ+RZHYHUEHQHILFLDORZQHUV PD\ UHJLVWHU WR UHFHLYH VXFK LQIRUPDWLRQ GLUHFWO\ E\ FRQWDFWLQJ WKH 7HQGHU $JHQW  6HH &217,18,1* ',6&/2685( 2) ,1)250$7,21KHUHLQ  ,QWKHHYHQWWKDWWKH%RQGVDUHQRWFRQYHUWHGDQGUHPDUNHWHGWRQHZSXUFKDVHUVRQWKH5DWH$GMXVWPHQW'DWHRFFXUULQJLPPHGLDWHO\ DIWHUFRQFOXVLRQRIWKH&XUUHQW7HUP0RGH,QWHUHVW3HULRG RUWKHILUVW%XVLQHVV'D\WKHUHDIWHU WKH&LW\VKDOOKDYHQRREOLJDWLRQ WRSXUFKDVHWKH%RQGVWHQGHUHGRQVXFKGDWHWKHIDLOHGFRQYHUVLRQDQGUHPDUNHWLQJVKDOOQRWFRQVWLWXWHDQHYHQWRIGHIDXOWXQGHU WKH2UGLQDQFHRUWKH%RQGVWKHPDQGDWRU\WHQGHUZLOOEHGHHPHGWRKDYHEHHQUHVFLQGHGIRUWKDWGDWHZLWKUHVSHFWWRWKH%RQGV VXEMHFW WR VXFK IDLOHG UHPDUNHWLQJ RQO\ DQG VXFK %RQGV L  ZLOO FRQWLQXH WR EH 2XWVWDQGLQJ LL  ZLOO EH SXUFKDVHG XSRQ WKH DYDLODELOLW\ RI IXQGV WR EH UHFHLYHG IURP WKH VXEVHTXHQW UHPDUNHWLQJ RI VXFK %RQGV LLL  ZLOO EH VXEMHFW WR UHGHPSWLRQ DQG PDQGDWRU\WHQGHUIRUSXUFKDVHRQDQ\GDWHGXULQJWKH7HUP0RGHSHULRGGXULQJZKLFKLQWHUHVWDFFUXHVDWWKH6WHSSHG5DWH DQG ZKLFKVKDOORFFXUDWWKH &LW\ VGLVFUHWLRQ DQG XSRQGHOLYHU\RIDWOHDVWRQH GD\ VQRWLFH RIVXFKUHGHPSWLRQRUUHTXLUHPHQWRI PDQGDWRU\WHQGHUWRWKHKROGHUVRI%RQGV WKHQEHDULQJLQWHUHVWDWWKH6WHSSHG5DWH DQG LY ZLOOEHGHHPHGWRFRQWLQXHLQWKH &XUUHQW7HUP0RGH,QWHUHVW3HULRGIRUDOORWKHUSXUSRVHVRIWKH2UGLQDQFHWKRXJKEHDULQJLQWHUHVWGXULQJVXFKWLPHDWWKH6WHSSHG 5DWH XQWLO UHPDUNHWHG RU UHGHHPHG LQ DFFRUGDQFH ZLWK WKH WHUPV RI WKH 2UGLQDQFH ,Q WKH HYHQW RI D IDLOHG FRQYHUVLRQ DQG UHPDUNHWLQJDVGHVFULEHGDERYHWKH&LW\KDVFRYHQDQWHGLQWKH2UGLQDQFHWRFDXVHWKH%RQGVWREHFRQYHUWHGDQGUHPDUNHWHGRQ WKHHDUOLHVWUHDVRQDEO\SUDFWLFDEOHGDWHRQZKLFKWKH\FDQEHVROGDWSDULQVXFK,QWHUHVW0RGHRU0RGHVDVWKH&LW\GLUHFWVDWD UDWHQRWH[FHHGLQJWKH0D[LPXP5DWH BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB

3UHOLPLQDU\VXEMHFWWRFKDQJH 

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– &RQYHUVLRQ RI ,QWHUHVW 0RGHV ,QFOXGLQJ &XUUHQW &RQYHUVLRQ  0DQGDWRU\ 7HQGHU 3XUFKDVH RI 7HQGHUHG %RQGV – 0DQGDWRU\ 7HQGHUIRUWKHHIIHFWVRIDIDLOHGUHPDUNHWLQJRI%RQGVZKHQWKHUHH[LVWVQR/LTXLGLW\)DFLOLW\SURYLGLQJOLTXLGLW\VXSSRUWWKHUHIRU 

! " $1<%21' 253257,217+(5(2) :+,&+,65(48,5('72%(0$1'$725,/<7(1'(5(' $6'(6&5,%('81'(5$1')25:+,&+3$<0(172)7+(385&+$6(35,&(,6'8/<3529,'(')25217+( 5(/(9$17385&+$6( '$7(:,//%('((0('72+$9(%((17(1'(5('$1'62/'21 68&+385&+$6( '$7($1'7+(+2/'(52)68&+%21':,//1277+(5($)7(5%((17,7/('72$1<3$<0(17 ,1&/8',1* $1<,17(5(67$&&58('68%6(48(177268&+385&+$6('$7( ,15(63(&77+(5(2)27+(57+$17+( 385&+$6( 35,&( )25 68&+ %21' 25 3257,21 25 27+(5:,6( %( 6(&85(' %< 25 (17,7/(' 72 $1< %(1(),781'(57+(25',1$1&( 

REDEMPTION OF BONDS   #  $% 7KH%RQGVDUHVXEMHFWWRPDQGDWRU\VLQNLQJIXQGUHGHPSWLRQE\WKH&LW\SULRUWRWKHLU VFKHGXOHGPDWXULW\ EXWQRWGXULQJWKH&XUUHQW7HUP0RGH,QWHUHVW3HULRG DWDUHGHPSWLRQSULFHHTXDOWRRIWKHSULQFLSDO DPRXQWWKHUHRIZLWKRXWSUHPLXPRQWKHILUVWLQWHUHVWSD\PHQWGDWHIRUVXFK%RQGVRQRUDIWHU)HEUXDU\RIWKH\HDUVDQGLQWKH SULQFLSDODPRXQWVLQGLFDWHGEHORZ        
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

3UHOLPLQDU\VXEMHFWWRFKDQJH 

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–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–%RQG3URYLVLRQV$GGLWLRQDO%RQGVKHUHLQDQG$33(1',;&–&(57$,1 3529,6,2162)7+(25',1$1&(  7KH2UGLQDQFHGRHVQRWFUHDWHDPRUWJDJHRURWKHUVHFXULW\LQWHUHVWRQWKHSURSHUW\RIWKH6\VWHPV7KHWD[LQJSRZHURIQHLWKHU WKH&LW\QRUWKH6WDWHLVSOHGJHGIRUWKHSD\PHQWWKHUHRI  )RUDGHVFULSWLRQRIWKHVRXUFHVRISD\PHQWRIWKHSXUFKDVHSULFHRI%RQGVWHQGHUHGIRUSXUFKDVHVHH7+(%21'6–&RQYHUVLRQ RI,QWHUHVW0RGHV ,QFOXGLQJ&XUUHQW&RQYHUVLRQ 0DQGDWRU\7HQGHU/LPLWDWLRQVRQ3D\PHQWRI3XUFKDVH3ULFHKHUHLQ  

  

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obligations incurred for any purpose…relating to the utiOLW\V\VWHPDQGDQ\RXWVWDQGLQJGHEWDJDLQVWWKHV\VWHP7KLVVWDWXWH FRXOGEHDPHQGHGRUUHSHDOHGE\WKH7H[DV/HJLVODWXUH6HH$33(1',;&–&(57$,13529,6,2162)7+(25',1$1&( $OVRVHH6$1 $1721,2(/(&75,& $1' *$6 6<67(06 –5HWDLO6HUYLFH 5DWHVDQG–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–5HFRUG'DWH'XULQJWKH&XUUHQW7HUP0RGH,QWHUHVW3HULRGKHUHLQ  #

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–%RQG3URYLVLRQV–$XWKRULW\IRUWKH%RQGV WKH &LW\KDVQRWZDLYHGWKHGHIHQVHRIVRYHUHLJQLPPXQLW\ZLWKUHVSHFWWKHUHWR%HFDXVHLWLVXQFOHDUZKHWKHUWKH7H[DV/HJLVODWXUH KDVHIIHFWLYHO\ZDLYHGWKH&LW\ VVRYHUHLJQLPPXQLW\IURPDVXLWIRUPRQH\GDPDJHVRXWVLGHRI&KDSWHUUHJLVWHUHGRZQHUV PD\QRWEHDEOHWREULQJVXFKDVXLWDJDLQVWWKH&LW\IRUEUHDFKRIWKH%RQGVRUWKH2UGLQDQFHFRYHQDQWV(YHQLIDMXGJPHQWDJDLQVW 

WKH&LW\FRXOGEHREWDLQHGLWFRXOGQRWEHHQIRUFHGE\GLUHFWOHY\DQGH[HFXWLRQDJDLQVWWKH&LW\ VSURSHUW\)XUWKHUPRUHWKH&LW\ LVHOLJLEOHWRVHHNUHOLHIIURPLWVFUHGLWRUVXQGHU&KDSWHURIWKH8QLWHG6WDWHV%DQNUXSWF\&RGH &KDSWHU $OWKRXJK&KDSWHU  SURYLGHV IRU WKH UHFRJQLWLRQ RI D VHFXULW\ LQWHUHVW UHSUHVHQWHG E\ D VSHFLILFDOO\ SOHGJHG VRXUFH RI UHYHQXHV VXFK DV WKH 1HW 5HYHQXHV  VXFK SURYLVLRQ LV VXEMHFW WR MXGLFLDO FRQVWUXFWLRQ  &KDSWHU  DOVR LQFOXGHV DQ DXWRPDWLF VWD\ SURYLVLRQ WKDW ZRXOG SURKLELWZLWKRXWEDQNUXSWF\FRXUWDSSURYDOWKHSURVHFXWLRQRIDQ\RWKHUOHJDODFWLRQE\FUHGLWRUVRUERQGKROGHUVRIDQHQWLW\ZKLFK KDVVRXJKWSURWHFWLRQXQGHU&KDSWHU7KHUHIRUHVKRXOGWKH&LW\DYDLOLWVHOIRI&KDSWHUSURWHFWLRQIURPFUHGLWRUVWKHDELOLW\WR HQIRUFHZRXOGEHVXEMHFWWRWKHDSSURYDORIWKHEDQNUXSWF\FRXUW ZKLFKFRXOGUHTXLUHWKDWWKHDFWLRQEHKHDUGLQEDQNUXSWF\FRXUW LQVWHDGRIRWKHUIHGHUDORUVWDWHFRXUW DQGWKH%DQNUXSWF\&RGHSURYLGHVIRUEURDGGLVFUHWLRQDU\SRZHUVRIDEDQNUXSWF\FRXUWLQ DGPLQLVWHULQJDQ\SURFHHGLQJEURXJKWEHIRUHLW7KHRULJLQDORSLQLRQRI&R%RQG&RXQVHOUHODWLQJWRWKH%RQGVWKHIRUPRIZKLFK LVDWWDFKHGKHUHWRDV$33(1',;'QRWHVWKDWDOORSLQLRQVUHODWLYHWRWKHHQIRUFHDELOLW\RIWKH2UGLQDQFHDQGWKH%RQGVDUHTXDOLILHG ZLWKUHVSHFWWRWKHFXVWRPDU\ULJKWVRIGHEWRUVUHODWLYHWRWKHLUFUHGLWRUVDQGJHQHUDOSULQFLSOHVRIHTXLW\WKDWSHUPLWWKHH[HUFLVHRI MXGLFLDOGLVFUHWLRQ  "-. -& #  7KLV VHFWLRQ GHVFULEHV KRZ RZQHUVKLS RI WKH %RQGV LV WR EH WUDQVIHUUHG DQG KRZ WKH SULQFLSDO RI SUHPLXPLIDQ\DQGLQWHUHVWRQWKH%RQGVDUHWREHSDLGWRDQGFUHGLWHGE\'7&ZKLOHWKH%RQGVDUHUHJLVWHUHGLQLWVQRPLQHH QDPH7KHLQIRUPDWLRQLQWKLVVHFWLRQFRQFHUQLQJ'7&DQGWKH%RRN(QWU\2QO\6\VWHPKDVEHHQSURYLGHGE\'7&IRUXVHLQ GLVFORVXUHGRFXPHQWVVXFKDVWKLV5HPDUNHWLQJ0HPRUDQGXP7KH&LW\WKH&R)LQDQFLDO$GYLVRUVDQGWKH5HPDUNHWLQJ$JHQW EHOLHYHWKHVRXUFHRIVXFKLQIRUPDWLRQWREHUHOLDEOHEXWWDNHQRUHVSRQVLELOLW\IRUWKHDFFXUDF\RUFRPSOHWHQHVVWKHUHRI  7KH&LW\FDQQRWDQGGRHVQRWJLYHDQ\DVVXUDQFHWKDW L '7&ZLOOGLVWULEXWHSD\PHQWVRIGHEWVHUYLFHRQWKH%RQGVRUUHGHPSWLRQ RU RWKHU QRWLFHV WR '7& 3DUWLFLSDQWV LL  '7& 3DUWLFLSDQWV RU RWKHUV ZLOO GLVWULEXWH GHEW VHUYLFH SD\PHQWV SDLG WR '7& RU LWV QRPLQHH DVWKHUHJLVWHUHGRZQHURIWKH%RQGV RUUHGHPSWLRQRURWKHUQRWLFHVWRWKH%HQHILFLDO2ZQHUVRUWKDWWKH\ZLOOGRVR RQDWLPHO\EDVLVRU LLL '7&ZLOOVHUYHDQGDFWLQWKHPDQQHUGHVFULEHGLQWKLV 5HPDUNHWLQJ0HPRUDQGXP7KHFXUUHQWUXOHV DSSOLFDEOHWR'7&DUHRQILOHZLWKWKH8QLWHG6WDWHV6HFXULWLHVDQG([FKDQJH&RPPLVVLRQDQGWKHFXUUHQWSURFHGXUHVRI'7&WR EHIROORZHGLQGHDOLQJZLWK'7&3DUWLFLSDQWVDUHRQILOHZLWK'7&  '7&ZLOODFWDVVHFXULWLHVGHSRVLWRU\IRUWKH%RQGV7KH%RQGVZLOOEHLVVXHGDVIXOO\UHJLVWHUHGVHFXULWLHVUHJLVWHUHGLQWKHQDPH RI&HGH &R '7& VSDUWQHUVKLSQRPLQHH RUVXFKRWKHUQDPHDVPD\EHUHTXHVWHGE\DQDXWKRUL]HGUHSUHVHQWDWLYHRI'7&2QH IXOO\UHJLVWHUHGFHUWLILFDWHZLOOEHLVVXHGIRUWKH%RQGVLQWKHDJJUHJDWHSULQFLSDODPRXQWRIVXFKLVVXHDQGZLOOEHGHSRVLWHGZLWK '7&  '7&WKHZRUOG VODUJHVWGHSRVLWRU\LVDOLPLWHGSXUSRVHWUXVWFRPSDQ\RUJDQL]HGXQGHUWKH1HZ
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

7R IDFLOLWDWH VXEVHTXHQW WUDQVIHUV DOO %RQGV GHSRVLWHG E\ 'LUHFW 3DUWLFLSDQWV ZLWK '7& DUH UHJLVWHUHG LQ WKH QDPH RI '7& V SDUWQHUVKLSQRPLQHH&HGH &RRUVXFKRWKHUQDPHDVPD\EHUHTXHVWHGE\DQDXWKRUL]HGUHSUHVHQWDWLYHRI'7&7KHGHSRVLW RI%RQGVZLWK'7&DQGWKHLUUHJLVWUDWLRQLQWKHQDPHRI&HGH &RRUVXFKRWKHU'7&QRPLQHHGRQRWHIIHFWDQ\FKDQJHLQ EHQHILFLDORZQHUVKLS'7&KDVQRNQRZOHGJHRIWKHDFWXDO%HQHILFLDO2ZQHUVRIWKH%RQGV'7& VUHFRUGVUHIOHFWRQO\WKHLGHQWLW\ 

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

  >7+(5(0$,1'(52)7+,63$*(,17(17,21$//</()7%/[email protected]

   

'(%76(59,&(5(48,5(0(176 

OUTSTANDING SENIOR LIEN OBLIGATIONS AND JUNIOR LIEN OBLIGATIONS



7KHIROORZLQJVFKHGXOHFDOFXODWHGRQDQDFFUXDO UDWKHUWKDQFDVK EDVLVUHIOHFWVDQQXDOGHEWVHUYLFHUHTXLUHPHQWVRQDOORXWVWDQGLQJ 6HQLRU/LHQ2EOLJDWLRQVDQG-XQLRU/LHQ2EOLJDWLRQV H[FOXGLQJWKHFXUUHQW)LVFDO
7RWDO6HQLRU/LHQ

-XQLRU/LHQ2EOLJDWLRQV 9DULDEOH5DWH )L[HG5DWH

2EOLJDWLRQV  

2EOLJDWLRQV   

                                

                                

7RWDO6HQLRUDQG -XQLRU/LHQ

2EOLJDWLRQV  

2EOLJDWLRQV 

                                

                                

3UHOLPLQDU\VXEMHFWWRFKDQJH 



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period’s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





HISTORICAL NET REVENUES AND COVERAGE  )LVFDO


















0DLQWHQDQFH 2SHUDWLQJ([SHQVHV …… 









Available For Debt Service ……………… $FWXDO3ULQFLSDODQG,QWHUHVW 5HTXLUHPHQWV 6HQLRU/LHQ2EOLJDWLRQV    …………… 

















-XQLRU/LHQ2EOLJDWLRQV  ……………… 









*URVV5HYHQXHV

 

………………………  

$&78$/&29(5$*(6HQLRU/LHQ  … $&78$/&29(5$*( Senior and Junior Liens ………………

[

[

[

[

[

[

[

[

[

[





















352)250$0$'6&29(5$*( 6HQLRU/LHQ  ………………………… 6HQLRUDQG-XQLRU/LHQV



……………

3UHOLPLQDU\VXEMHFWWRFKDQJH



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

         >7+(5(0$,1'(52)7+,63$*(,17(17,21$//</()7%/$1.@          





-81,25/,(12%/,*$7,216  2Q1RYHPEHUWKH&LW\LVVXHGLWV(OHFWULFDQG*DV6\VWHPV-XQLRU/LHQ5HYHQXH%RQGV7D[DEOH6HULHV $ 'LUHFW6XEVLG\–%XLOG$PHULFD%RQGV DQGLWV(OHFWULFDQG*DV6\VWHPV-XQLRU/LHQ5HYHQXH5HIXQGLQJ %RQGV 7D[DEOH 6HULHV % 'LUHFW 6XEVLG\ –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–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–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

   

BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB

3UHOLPLQDU\VXEMHFWWRFKDQJH   



&200(5&,$/3$3(5352*5$0 

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



6$1$1721,2(/(&75,&$1'*$66<67(06 

HISTORY AND MANAGEMENT

 7KH&LW\DFTXLUHGLWVHOHFWULFDQGJDVXWLOLWLHVLQIURPWKH$PHULFDQ/LJKWDQG7UDFWLRQ&RPSDQ\ZKLFKKDGEHHQRUGHUHGE\ WKHIHGHUDOJRYHUQPHQWWRVHOOSURSHUWLHVXQGHUSURYLVLRQVRIWKH+ROGLQJ&RPSDQ\$FWRI7KH%RQG2UGLQDQFHVHVWDEOLVK PDQDJHPHQWUHTXLUHPHQWVDQGSURYLGH WKDWWKH FRPSOHWH PDQDJHPHQWDQGFRQWURORIWKH 6\VWHPV LV YHVWHGLQWKH %RDUG7KH 0D\RURIWKH&LW\LVDYRWLQJPHPEHURIWKH%RDUGUHSUHVHQWVWKH&LW\&RXQFLODQGLVFKDUJHGZLWKWKHGXW\DQGUHVSRQVLELOLW\RI NHHSLQJWKH&LW\&RXQFLOIXOO\DGYLVHGDQGLQIRUPHGDWDOOWLPHVRIDQ\DFWLRQVGHOLEHUDWLRQVDQGGHFLVLRQVRIWKH%RDUGDQGLWV FRQGXFWRIWKHPDQDJHPHQWRIWKH6\VWHPV7KHSUHVHQWPHPEHUVRIWKH%RDUGDUH   1DPH 3RVLWLRQ (GZDUG%.HOOH\ &KDLUPDQ 'HUULFN+RZDUG 9LFH&KDLUPDQ +RPHU*XHYDUD-U 7UXVWHH -RKQ76WHHQ-U 7UXVWHH ,Y\57D\ORU ([2IILFLR0HPEHU

 3URIHVVLRQ 3UHVLGHQW &(2 86$$5HDO(VWDWH5HWLUHG  ([HFXWLYH'LUHFWRU )UHHPDQ&ROLVHXP  3URIHVVRU%XVLQHVV *RYHUQPHQW 1RUWKZHVW9LVWD&ROOHJH  $WWRUQH\ /DZ2IILFHRI-RKQ76WHHQ-U  0D\RU &LW\RI6DQ$QWRQLR

2ULJLQDOO\ $SSRLQWHGWRWKH%RDUG  0D\

 3UHVHQW7HUP([SLUHV 

)HEUXDU\

-DQXDU\

0DUFK

-DQXDU\

)HEUXDU\

-DQXDU\

-XO\

0D\

-DQXDU\

BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB 

'HUULFN+RZDUGDQG+RPHU*XHYDUD-UDUHVHUYLQJWKHLUVHFRQGWHUPV(GZDUG.HOOH\DQG-RKQ6WHHQDUHVHUYLQJWKHLUILUVWWHUPV,Y\57D\ORUZDVHOHFWHGDV0D\RUWRDILUVWWHUP DIWHUVHUYLQJDQDSSRLQWHGXQH[SLUHGWHUPDQGZDVVZRUQLQRQ-XQH

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

&36(QHUJ\ VDODULHGDQGH[HFXWLYHHPSOR\HHVSDUWLFLSDWH LQDQ(PSOR\HH,QFHQWLYH 3ODQ (,3 WKDWUHZDUGVSDUWLFLSDWLRQLQ FRQWUROOLQJH[SHQVHVSURPRWLQJVDIHW\PDLQWDLQLQJORZXWLOLW\ELOOVDQGHQKDQFLQJFXVWRPHUVDWLVIDFWLRQ7KH(,3SURYLGHVOLQNV EHWZHHQ&36(QHUJ\ VFRPSHWLWLYHQHVVDQGFRPSHQVDWLRQ,QDGGLWLRQWREURDGSHUIRUPDQFHE\&36(QHUJ\HPSOR\HHV LQGLYLGXDO SHUIRUPDQFHLVOLQNHGWRWKHLULQGLYLGXDOLQFHQWLYHSD\RXW  &36(QHUJ\FRQWLQXHVWRHQKDQFHLWV3HUIRUPDQFH0DQDJHPHQWV\VWHPZKLFKPHDVXUHVSHUIRUPDQFHDJDLQVWWDUJHWHGSHUIRUPDQFH JRDOVDQGDQHVWDEOLVKHGVHWRIEHKDYLRUV LHEHKDYLRUDOSULQFLSOHVDQGRUFULWLFDOPHDVXUHV (PSOR\HHVDUHHQJDJHGLQZRUNLQJ WRZDUGNH\SHUIRUPDQFHJRDOVWKDWDOLJQWRRUJDQL]DWLRQDODQGEXVLQHVVXQLWDUHDVWUDWHJLHVDQGREMHFWLYHV7KHSURFHVVLVGHVLJQHG WR SURYLGH IRU FRQWLQXDO PRQLWRULQJ DQG D KLJK OHYHO RI FRDFKLQJ DQG IHHGEDFN WR UHDFK SHUIRUPDQFH H[SHFWDWLRQV WR SURYLGH PHDQLQJIXOGHYHORSPHQWDORSSRUWXQLWLHVWRHPSKDVL]HKRZUHVXOWVDUHDFKLHYHGDQGWRUHZDUGDQGUHFRJQL]HFRQWULEXWLRQVWRZDUG EXVLQHVVJRDOV,QDGGLWLRQ&36(QHUJ\LVDFWLYHO\HQJDJHGLQFRPSUHKHQVLYHZRUNIRUFHGHYHORSPHQWDQGVXFFHVVLRQSODQQLQJ SURFHVVHV WR SURPRWH ZLGHU GHYHORSPHQW RSSRUWXQLWLHV IRU HPSOR\HHV WR OHDUQ DQG JURZ  7KHVH SURFHVVHV DUH EDVHG RQ WKH IRXQGDWLRQDOLGHDVWKDWDOOHPSOR\HHVDUHH[SHFWHGWRGHYHORSWRWKHLUPD[LPXPFDSDELOLWLHVDQGWKDWVXFFHVVLRQSODQQLQJPXVW IRFXVRQHQVXULQJWKDWNH\SRVLWLRQVZLOOEHVWDIIHGE\HPSOR\HHVZKRKDYHWKHFDSDFLW\WRNHHS&36(QHUJ\RSHUDWLQJDWLWVKLJKHVW OHYHORISURGXFWLYLW\ 

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–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experience in employee health and safety, risk, workers’ compensation, and labor relations. He has worked for Louisville Gas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

RETAIL AND WHOLESALE ELECTRIC AND NATURAL GAS SALES 

RETAIL SERVICE AREA 

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–7+((/(&75,&87,/,7<,1'8675<,1*(1(5$/–(5&27KHUHLQ(5&27LVWKHLQGHSHQGHQWHQWLW\WKDW PRQLWRUV DQG DGPLQLVWHUV WKH IORZ RI HOHFWULFLW\ ZLWKLQ WKH LQWHUFRQQHFWHG JULG WKDW RSHUDWHV ZKROO\ ZLWKLQ 7H[DV WKH WHUP (5&27DOVRUHIHUVWRWKHDUHDZLWKLQ7H[DVVHUYHGE\WKLVLQWHUFRQQHFWHGJULG6HH6$1$1721,2(/(&75,&$1'*$6 6<67(06 – '(6&5,37,21 2) )$&,/,7,(6 – (OHFWULF 6\VWHP  ,QWHUFRQQHFWHG 6\VWHP DQG &86720(5 5$7(6 – *RYHUQPHQWDOO\,PSRVHG)HHV7D[HVRU3D\PHQWVKHUHLQ&36(QHUJ\KDVWKHRSWLRQRIDFWLQJLQWKHUROHRIWKH3URYLGHURI /DVW5HVRUW KHUHLQDIWHUGHILQHG IRULWVVHUYLFHDUHDLQWKHHYHQWLWDQGWKH&LW\FKRRVHWRRSWLQ6HH&(57$,1)$&7256 $))(&7,1* 7+( (/(&75,& 87,/,7< ,1'8675< – 7+( (/(&75,& 87,/,7< ,1'8675< *(1(5$//< – (OHFWULF 8WLOLW\5HVWUXFWXULQJLQ7H[DVKHUHLQ 

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–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

LQFUHDVHIUDQFKLVHIHHVWRWKDWZHQWLQWRHIIHFW)HEUXDU\7KHDGGLWLRQDORQO\DSSOLHVWRFXVWRPHUVZLWKLQWKRVH WZRMXULVGLFWLRQDOFLW\ERXQGDULHV

 &XVWRPHU%DVHDVRI-DQXDU\





(OHFWULF 

5HVLGHQWLDO &RPPHUFLDO ,QGXVWULDO $OO1LJKW6HFXULW\/LJKWLQJ 6WUHHW/LJKWLQJ3XEOLF$XWKRULWLHV  2WKHU8WLOLWLHV   7RWDO





*DV  1XPEHU

3HUFHQW

  

  

  

 

1XPEHU

3HUFHQW

5HVLGHQWLDO &RPPHUFLDO ,QGXVWULDO 3XEOLF

   

  

7RWDO

 



  6HH),9(<($5 (/(&75,& $1'*$6 6$/(6 %< &86720(5 &$7(*25< DQG),9(<($5 67$7(0(17 2) 1(7 5(9(18(6 $1''(%7 6(59,&( &29(5$ *( KHUHLQIRULQIRUPDWLRQ UHJDUGLQJFRQVXPSWLRQRIHQHUJ\DQGFRQWULEXWLRQRIUHYHQXHVWRWKH6\VWHPV E\ WKHDYHUDJHFXVWRPHUVIRUWKHVHFDWHJRULHVDVRI-DQXDU\    $OVRLQFOXGHVRIIV\WHPVDOHVFXVWRPHUV



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

CUSTOMERS AND RATES 

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– &86720(56$1'5$7(6–&XVWRPHU5DWHV–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–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–5DWH&RYHQDQW  &36(QHUJ\ KDV SHULRGLF UDWH LQFUHDVHV ZLWK WKH PRVW UHFHQW HOHFWULF DQG JDV EDVH UDWH LQFUHDVH RI  LPSOHPHQWHG RQ )HEUXDU\ WKHILUVWVXFKUDWHLQFUHDVHVLQFHDHOHFWULFEDVHUDWHLQFUHDVHDQGDJDVEDVHUDWHLQFUHDVHEHFDPH HIIHFWLYHRQ0DUFK &36(QHUJ\DQQRXQFHGLQ2FWREHUWKDWLWZLOOQRWQHHGWRUHTXHVWDUDWHDGMXVWPHQWWKURXJK )LVFDO
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–&86720(56$1'5$7(6–&XVWRPHU5DWHV–)XHODQG*DV&RVW$GMXVWPHQWKHUHLQ 7KHWRWDOFRVWRIWKH67(3SURJUDPGXULQJWKHWRWLPHSHULRGLVHVWLPDWHGDWPLOOLRQZLWKDQQXDOFRVWVUDQJLQJ IURPPLOOLRQWRRYHUPLOOLRQ:KLOHDSSUR[LPDWHO\WRPLOOLRQD\HDULVFXUUHQWO\UHFRYHUHGWKURXJKH[LVWLQJEDVH UDWHVWKHDGGLWLRQDOFRVWVIRUWKH67(3SURJUDPZLOOEHUHFRYHUHGWKURXJKD67(3VXUFKDUJHDSSOLHGWRWKHHOHFWULFIXHODGMXVWPHQW DVVWDWHGDERYH7KURXJK)LVFDO
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

7UDQVPLVVLRQ$FFHVVDQG5DWH5HJXODWLRQ  3XUVXDQW WR DPHQGPHQWV PDGH E\ WKH 7H[DV /HJLVODWXUH LQ  WR WKH 385$ 385$  0XQLFLSDO 8WLOLWLHV LQFOXGLQJ &36(QHUJ\EHFDPHVXEMHFWWRWKHUHJXODWRU\MXULVGLFWLRQRIWKH38&7IRUWUDQVPLVVLRQRIZKROHVDOHHQHUJ\385$UHTXLUHV 

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† E DOVRSURYLGHVWKDW WKH38&7PD\UHTXLUHFRQVWUXFWLRQRUHQODUJHPHQWRIWUDQVPLVVLRQIDFLOLWLHVLQRUGHUWRIDFLOLWDWHZKROHVDOHWUDQVPLVVLRQVHUYLFH $GGLWLRQDO LQIRUPDWLRQ RQ UHFRYHU\ RI (5&27 WUDQVPLVVLRQ IHHV LV GLVFXVVHG LQ 6$1 $1721,2 (/(&75,& $1' *$6 6<67(06 – &86720(56 $1' 5$7(6 – &XVWRPHU 5DWHV – *RYHUQPHQWDOO\ ,PSRVHG )HHV 7D[HV RU 3D\PHQWV DQG ZLWK UHVSHFW WR WKH WUDQVLWLRQ WR WKH QRGDO PDUNHW LV GLVFXVVHG LQ &(57$,1 )$&7256 $))(&7,1* 7+( (/(&75,& 87,/,7< ,1'8675<–(/(&75,&87,/,7<5(6758&785,1*,17(;$6–:KROHVDOH0DUNHW'HVLJQ'HYHORSPHQWVKHUHLQ 

 7(1<($5(/(&75,&&86720(567$7,67,&6 

  5(6,'(17,$/ $YHUDJH0RQWKO\N:K &XVWRPHU $YHUDJH0RQWKO\%LOO &XVWRPHU $YHUDJH0RQWKO\ 5HYHQXHN:K &200(5&,$/$1' ,1'8675,$/ $YHUDJH0RQWKO\N:K &XVWRPHU $YHUDJH0RQWKO\%LOO &XVWRPHU $YHUDJH0RQWKO\ 5HYHQXHN:K $//&86720(56 $YHUDJH0RQWKO\N:K &XVWRPHU $YHUDJH0RQWKO\%LOO &XVWRPHU $YHUDJH0RQWKO\ 5HYHQXHN:K







)LVFDO


























































































































































































 ([FOXGHVXQELOOHGUHYHQXHVDQGRIIV\VWHPVDOHV



 +,6725,&$/5(&25'2)&,7<2)6$1$1721,2*(1(5$/)81' %(1(),76)520&,7< 6(/(&75,&$1'*$687,/,7<6<67(06 'ROODUVLQWKRXVDQGV

3D\PHQWV 7R&LW\   

 

 

)LVFDO
 

 

 

 

(1)

Payments to the City, by ordinance, are not to exceed 14% of CPS Energy's gross revenue (includes wholesale revenues), and includes cash payments and refund of charges for furnishing the City electricity and gas services, and for a street light replacement program. See Appendix B.



([FOXGHVDGGLWLRQDOSD\PHQWVWRWKH&LW\6HH &216758&7,21352*5$0KHUHLQ







),9(<($5(/(&75,&$1'*$66$/(6%<&86720(5&$7(*25< )LVFDO










   

   

   

   

   

2WKHUXWLOLWLHV  $16/  7RWDOVDOHVLQN:+

  

  

  

  

  

$9(5$*(180%(5 2)&86720(56 5HVLGHQWLDO &RPPHUFLDO LQGXVWULDO 6WUHHWOLJKWLQJ 3XEOLFDXWKRULWLHV

   

   

   

   

   

2WKHUXWLOLWLHV  $16/  7RWDOFXVWRPHUV

  

  

  

  

  

N:K6$/(63(5 &86720(5 5HVLGHQWLDO &RPPHUFLDO LQGXVWULDO

 

 

 

 

 

6$/(6,10&)  5HVLGHQWLDO &RPPHUFLDO ,QGXVWULDO 3XEOLFDXWKRULWLHV 7RWDOVDOHVLQ0&)

    

    

    

    

    

$9(5$*(180%(5 2)&86720(56 5HVLGHQWLDO &RPPHUFLDO ,QGXVWULDO 3XEOLFDXWKRULWLHV 7RWDOFXVWRPHUV

    

    

    

    

    

  

  

  

  

  

(/(&75,&6<67(0 6$/(6,1N:K  5HVLGHQWLDO &RPPHUFLDO LQGXVWULDO 6WUHHWOLJKWLQJ 3XEOLFDXWKRULWLHV

*$66<67(0

0&)6$/(63(5 &86720(5 5HVLGHQWLDO &RPPHUFLDO ,QGXVWULDO  ([FOXGHVXQELOOHGUHYHQXHV  ,QFOXGHV2II6\VWHPV6DOHV  $OO1LJKW6HFXULW\/LJKWLQJ





  

),9(<($567$7(0(172)1(75(9(18(6$1''(%76(59,&(&29(5$*( )LVFDO










%,//('5(9(18(6 5HVLGHQWLDO &RPPHUFLDO LQGXVWULDO 6WUHHWOLJKWLQJ 3XEOLFDXWKRULWLHV 2WKHUXWLOLWLHV  $16/ 2WKHU 7RWDOUHYHQXHV

       

       

       

       

       

23(5$7,21 0$,17(1$1&( (;3(16( 3URGXFWLRQ  7UDQVPLVVLRQ  'LVWULEXWLRQ 5HJXODWRU\DVVHVVPHQWV (QHUJ\HIILFLHQF\  &XVWRPHUDFFRXQWV LQIRUPDWLRQ $GPLQLVWUDWLYH JHQHUDO   3D\UROOWD[HV  673GHFRPPLVVLRQLQJH[SHQVH 673RSHUDWLRQ PDLQWHQDQFHH[SHQVH 7RWDOH[SHQVHV 2SHUDWLQJLQFRPHHOHFWULF

           

           

           

           

           

%,//('5(9(18(6 5HVLGHQWLDO &RPPHUFLDO LQGXVWULDO 3XEOLFDXWKRULWLHV 2WKHU 7RWDOUHYHQXHV

    

    

    

    

    

23(5$7,21 0$,17(1$1&( (;3(16( *DVSXUFKDVHG 'LVWULEXWLRQ &XVWRPHUDFFRXQWV LQIRUPDWLRQ $GPLQLVWUDWLYH JHQHUDO  3D\UROOWD[HV 7RWDOH[SHQVHV 2SHUDWLQJLQFRPHJDV

      

      

      

      

      

  

  

  

  

  











  

  

  

  

  

(/(&75,&6<67(0

*$66<67(0

&RPELQHGRSHUDWLQJLQFRPH (OHFWULFDQGJDV 1RQRSHUDWLQJLQFRPH  1HWUHYHQXHVSHURUGLQDQFHV '(%76(59,&( 6HQLRUOLHQREOLJDWLRQV 3ULQFLSDODQGLQWHUHVW -XQLRUOLHQREOLJDWLRQV 3ULQFLSDODQGLQWHUHVW 2WKHULQWHUHVW GHEWUHODWHGFRVWV 7RWDOGHEWVHUYLFH '(%76(59,&(&29(5$*( 6HQLRU MXQLRUOLHQREOLJDWLRQV FRPPHUFLDOSDSHU)551 6HQLRUOLHQREOLJDWLRQV

[ [

[ [

[ [

[ [

[ [

 &HUWDLQDPRXQWVLQSULRU\HDUVKDYHEHHQUHFODVVLILHGWRFRQIRUPWRWKHFXUUHQW\HDUSUHVHQWDWLRQ  ([FOXGHVXQELOOHGUHYHQXHDQGFRPSRQHQWXQLWV 673'HFRPPLVVLRQLQJ   $OO1LJKW6HFXULW\/LJKWLQJ  3D\UROOWD[HVDUHDOORFDWHGVHSDUDWHO\WR3URGXFWLRQ7UDQVPLVVLRQDQG'LVWULEXWLRQ  ([FOXGHVIDLUYDOXHDGMXVWPHQWVDQGJDLQORVVIURPLQHIIHFWLYHKHGJLQJWUDQVDFWLRQV  7KH ORZHU ZKROHVD OH VDOHV UHYHQXHV DQG UHODWHG VDOHV YROXPH IRU )<  DUH D UHVXOW RI SODQW RXWDJHV GXULQJ D SRUWLRQ RI WKH \HDU DQG UHGXFHG PDUNHW RSSRUWXQLWLHV DQG PDUJLQV DV D UHVXOW RI ORZHU QDWXUDO JDV SULFHV



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

 



FINANCIAL MANAGEMENT OF THE SYSTEMS 

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

ACCOUNTING POLICIES

 

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

FINANCIAL RESPONSIBILITY AND DEBT DISCLOSURE / OFFERING DOCUMENT PREPARATION PROCESS  $WOHDVWDQQXDOO\DQGDWRWKHUWLPHVDVQHHGHGWRVXSSRUW&36(QHUJ\ VILQDQFLDODQGH[WHUQDOUHSRUWLQJDFWLYLWLHV LQFOXGLQJDQQXDO DXGLWVDQGDSSOLFDEOHRIILFLDOVWDWHPHQWVLQFOXGLQJWKLV5HPDUNHWLQJ0HPRUDQGXP &36(QHUJ\SXEOLVKHVILQDQFLDOLQIRUPDWLRQ WKDW LV GLVWULEXWHG WR H[WHUQDO VWDNHKROGHUV LQFOXGLQJ FXUUHQW DQG SRWHQWLDO LQYHVWRUV  $V SDUW RI WKH UHTXLUHPHQWV IRU ILQDQFLDO UHSRUWLQJDQGSDUWLFLSDWLRQLQWKHILQDQFLDOPDUNHWVWKH3UHVLGHQW &(27UHDVXUHUIRUPDOO\DIILUPVRQKHUEHKDOIDQGRQEHKDOI RIWKHHQWLUHPDQDJHPHQWVWDIIWKHLQWHJULW\RIWKHLQIRUPDWLRQSUHVHQWHG7RVXSSRUWWKLVUHTXLUHPHQW&36(QHUJ\KDVHVWDEOLVKHG D0DQDJHPHQW)LQDQFLDO5HVSRQVLELOLW\ 'LVFORVXUH&HUWLILFDWLRQ3URFHVV  8QGHU WKLV SURFHVV &36(QHUJ\ 0DQDJHPHQW 6HQLRU 0DQDJHU 'LUHFWRU 6HQLRU 'LUHFWRU 9LFH 3UHVLGHQW ([HFXWLYH 9LFH 3UHVLGHQWDQG&(2 LVUHTXLUHGWRVXEPLWD0DQDJHPHQW)LQDQFLDO5HVSRQVLELOLW\ 'LVFORVXUH&HUWLILFDWLRQ)RUP 'LVFORVXUH &HUWLILFDWLRQ  LQ ZKLFK WKH\ GHVFULEH DQ\ FRQGLWLRQV RI ZKLFK WKH\ DUH DZDUH WKDW FRXOG DIIHFW WKH SUHVHQWDWLRQ RI ILQDQFLDO LQIRUPDWLRQRUUHVXOWVRIRSHUDWLRQVLQFOXGLQJWKHVWDWXVRINH\V\VWHPVLQWHUQDOFRQWUROVRUUHJXODWRU\FRPSOLDQFHDQGWKHSRWHQWLDO IXWXUHHIIHFWVRIFXUUHQWO\NQRZQULVNVXQFHUWDLQWLHVHYHQWVFRQGLWLRQVRUWUHQGV7KH'LVFORVXUH&HUWLILFDWLRQVVXEPLWWHGDUH UHYLHZHGE\D'LVFORVXUH&RPPLWWHHZKLFKLQFOXGHVWKH3UHVLGHQW &(27UHDVXUHU WKH&KDLU &KLHI/HJDO $GPLQLVWUDWLYH 2IILFHU,QWHULP93)LQDQFLDO6HUYLFHV,QWHULP'LUHFWRU &RQWUROOHU6HQLRU'LUHFWRURI)LQDQFH 7UHDVXU\DQG,QWHULP'LUHFWRU RI(QWHUSULVH5LVN0DQDJHPHQW 6ROXWLRQV7KHRXWFRPHVRIWKLVSURFHVVDUHXVHGWRYDOLGDWHWKHSXEOLFGLVFORVXUHVWREHLQFOXGHG LQ&36(QHUJ\ VILQDQFLDOLQIRUPDWLRQDQGRIIHULQJGRFXPHQWDWLRQXVHGLQFRQQHFWLRQZLWK&36(QHUJ\ VSXEOLFRIIHULQJRILWVGHEW LQFOXGLQJWKH%RQGV   CAPITAL PROGRAM  &RPSUHKHQVLYHSURJUDPVIRUSODQQLQJDQGFRQVWUXFWLRQWRPHHWFXUUHQWDQGIXWXUHHOHFWULFDQGJDVV\VWHPVQHHGVDUHFRQWLQXDOO\ EHLQJUHYLHZHGDQGXSGDWHGDQGDUHDOLJQHGZLWKWKHVWUDWHJLFSODQ&36(QHUJ\XWLOL]HVFRPSXWHUEDVHGPDWKHPDWLFDOPRGHOV IRULWVIRUHFDVWLQJSURFHVVHV&36(QHUJ\EDVHVLWVQHDUWHUPFRQVWUXFWLRQDQGRSHUDWLQJQHHGVRQDILYH\HDUIRUHFDVW7KLVVKRUW WHUPDQQXDOIRUHFDVWLVVXSSRUWHGE\D\HDUHOHFWULFUHVRXUFHSODQDQGLVLQWHJUDWHGLQWRWKHORQJWHUPILQDQFLDOSODQ7KHVH DVVXPSWLRQVDUHVXEMHFWWRVXEVWDQWLDOFKDQJHDQGDUHUHYLVHGDVQHFHVVDU\WRPDLQWDLQ&36(QHUJ\ VFRPSHWLWLYHSRVLWLRQ  :KLOHVKRUWWHUPHQHUJ\GHPDQGSURMHFWLRQVKDYHEHHQLPSDFWHGE\UHFHQWHFRQRPLFGHYHORSPHQWVDQGZKLOHHQHUJ\HIILFLHQF\ DQGFRQVHUYDWLRQDUHH[SHFWHGWRUHGXFHXVDJHWKURXJK67(3SRVLWLYHFXVWRPHUJURZWKLVVWLOOH[SHFWHG&36(QHUJ\H[SHFWVWR VHHFRQWLQXHGJURZWKRILWVFXVWRPHUEDVHIRUWKH6\VWHPVGXHWRSURMHFWHGSRSXODWLRQJURZWKLQWKH6DQ$QWRQLRDUHD7KHFXUUHQW HQHUJ\VDOHVDQGSHDNGHPDQGIRUHFDVWSUHGLFWVDQQXDOLQFUHDVHVLQVDOHVRYHUWKHQH[W\HDUV EHWZHHQDQGLQ HOHFWULF DQG JDV VDOHV UHVSHFWLYHO\ DQG DQ DYHUDJH SHDN GHPDQG JURZWK UDWH RYHU WKH QH[W  \HDUV EHWZHHQ  SHU \HDU &36(QHUJ\KDVFRQWLQXHGWRH[SDQGLWVHOHFWULFFXVWRPHUH[WHQVLRQVZLWKRQJRLQJFRQVWUXFWLRQJURZWKLQWKLVDUHD7KHFDSLWDO SURMHFWVLQILVFDO\HDUDUHSODQQHGWREHIXQGHGZLWKWUDQVIHUVIURPLQWHUQDOO\JHQHUDWHGIXQGVGHEWSURFHHGVDQGRWKHU VRXUFHV  $FDSLWDOLPSURYHPHQWSODQLVPDGHIRUSODQQLQJSXUSRVHVDQGPD\LGHQWLI\SURMHFWVWKDWPD\EHGHIHUUHGRURPLWWHGHQWLUHO\LQ IXWXUH\HDUV,QDGGLWLRQWKHSURSRVHGIXQGLQJVRXUFHVIRUWKHSODQPD\EHPRGLILHGWRPHHWFKDQJLQJFRQGLWLRQV/LNHZLVHDV FRQGLWLRQVFKDQJHQHZSURMHFWVPD\EHDGGHGWKDWDUHQRWFXUUHQWO\LGHQWLILHG&36(QHUJ\FRQWLQXDOO\PRQLWRUVDQGXSGDWHVWKH FDSLWDOSODQZLWKHVWLPDWHVRIH[SHQGLWXUHVQHFHVVDU\WRPHHWSURSRVHGDQGSUREDEOHQHZHQYLURQPHQWDOUHJXODWLRQVDQGUHJXODWRU\ VWDQGDUGV  &36(QHUJ\ V FXUUHQW ELOOLRQ ILYH\HDU FDSLWDO LPSURYHPHQW SODQ LV IRUHFDVWHG IURP )HEUXDU\ WR -DQXDU\DQGGRHVQRWLQFOXGHH[SHQGLWXUHIRUIXUWKHUGHYHORSPHQWRI&36(QHUJ\ VH[LVWLQJLQWHUHVWLQ673DQG 673  6HH 6$1 $1721,2 (/(&75,& $1' *$6 6<67(06 – '(6&5,37,21 2) )$&,/,7,(6 – (OHFWULF 6\VWHP – $GGLWLRQDO*HQHUDWLRQ2SSRUWXQLWLHV–1XFOHDUKHUHLQ 

&RQVWUXFWLRQSURMHFWVLQFOXGHHOHFWULFWUDQVPLVVLRQHOHFWULFJHQHUDWLRQHOHFWULFGLVWULEXWLRQJHQHUDOSURSHUWLHVDQGJDVIDFLOLWLHV 6HH6$1$1721,2(/(&75,&$1'*$66<67(06 –'(6&5,37,212))$&,/,7,(6–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

7KH&RPPXQLW\,QIUDVWUXFWXUHDQG(FRQRPLF'HYHORSPHQW)XQG &,(' ZDVHVWDEOLVKHGE\%RDUGSROLF\RQ-DQXDU\ DVDVXFFHVVRUWRWKH2YHUKHDG&RQYHUVLRQ)XQG 2&) 7KH2&)ZDVRULJLQDOO\LQVWLWXWHGLQE\WKH%RDUGLQUHVSRQVHWR LQWHUHVWE\WKHFLWL]HQVDQGJRYHUQLQJERGLHVRIWKH&LW\DQGWKHVXEXUEDQFLWLHVZLWKLQWKH&36(QHUJ\VHUYLFHDUHDWRHQKDQFHWKH DHVWKHWLFDSSHDORIWKHSXEOLFDUHDVE\PLQLPL]LQJWKHYLVXDOLPSDFWRIRYHUKHDGHOHFWULFIDFLOLWLHV7KH&,('DPRXQWVHWDQQXDOO\ 

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

RUJDQL]DWLRQVZLWKLQ&)7&UXOHPDNLQJSURFHVVHVWRVKDSHUXOHVZKLFKZLOODOORZFRPPHUFLDOHQGXVHUVDQGPXQLFLSDOXWLOLWLHVWR DYRLGXQGXHEXUGHQVZKHQKHGJLQJWKHLUFRPPHUFLDOULVNV2XWRIWKRVHHIIRUWV&36(QHUJ\FXUUHQWO\EHQHILWVIURPDQH[HPSWLRQ DSSO\LQJWRFHUWDLQQRQILQDQFLDOHQHUJ\WUDQVDFWLRQVEHWZHHQJRYHUQPHQWDQGRUFRRSHUDWLYHRZQHGHOHFWULFXWLOLWLHV

INVESTMENTS 

2SHUDWLQJ)XQGV  &36(QHUJ\ LQYHVWV LWV RSHUDWLQJ IXQGV DV DXWKRUL]HG E\ WKH %RQG 2UGLQDQFHV DQG E\ IHGHUDO DQG 6WDWH ODZ LQFOXGLQJ EXW QRW OLPLWHGWRWKH3XEOLF)XQGV,QYHVWPHQW$FWDVDPHQGHG7H[DV*RYHUQPHQW&RGH&KDSWHU ,QYHVWPHQW$FW 7H[DV/RFDO *RYHUQPHQW&RGH&KDSWHUDVDPHQGHGDQGLQDFFRUGDQFHZLWKZULWWHQLQYHVWPHQWSROLFLHVDSSURYHGE\WKH%RDUG7KHVH %RQG2UGLQDQFHVODZVDQG&36(QHUJ\ VLQYHVWPHQWSROLFLHVDUHVXEMHFWWRFKDQJH  2Q -XO\   WKH 6HFXULWLHV DQG ([FKDQJH &RPPLVVLRQ DGRSWHG FKDQJHV WR LWV 5XOH D WKDW JRYHUQV PRQH\ PDUNHW IXQGV7KLVQHZUXOHLVHIIHFWLYHEHJLQQLQJ2FWREHUDQGUHTXLUHVDIORDWLQJQHWDVVHWYDOXH 1$9 IRULQVWLWXWLRQDOSULPH PRQH\PDUNHWIXQGVZKLFKDOORZVWKHGDLO\VKDUHSULFHVRIWKHVHIXQGVWRIOXFWXDWHDORQJZLWKFKDQJHVLQWKHPDUNHWEDVHGYDOXH of the fund’s assets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–5(7$,/$1':+2/(6$/((/(&75,&$1'1$785$/ *$66$/(6–:KROHVDOH3RZHU6$1$1721,2(/(&75,&$1'*$66<67(06 –),1$1&,$/0$1$*(0(172) 7+( 6<67(06 – (QWHUSULVH 5LVN 0DQDJHPHQW $QG 6ROXWLRQV DQG 6$1 $1721,2 (/(&75,& $1' *$6 6<67(06 – '(6&5,37,212))$&,/,7,(6–(OHFWULF6\VWHP–)XHO6XSSO\KHUHLQ 

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

PDQDJHUV   D GXW\ WR GHWHUPLQH ZKHWKHU WKH LQYHVWPHQW PDQDJHU V IHH VFKHGXOH IRU LQYHVWPHQW PDQDJHPHQW VHUYLFHV LV UHDVRQDEOHZKHQFRPSDUHGWRRWKHUVXFKPDQDJHUV  DGXW\WRLQYHVWLJDWHDQGGHWHUPLQHZKHWKHUWKHSDVWSHUIRUPDQFHRIWKH LQYHVWPHQWPDQDJHULQPDQDJLQJLQYHVWPHQWVKDVEHHQUHDVRQDEOH  DGXW\WRLQYHVWLJDWHDQGGHWHUPLQHZKHWKHUWKHILQDQFLDO VWDELOLW\DQGVWUHQJWKRIWKHLQYHVWPHQWPDQDJHULVDGHTXDWHIRUSXUSRVHVRIOLDELOLW\  DGXW\WRLQYHVWLJDWHDQGGHWHUPLQHZKHWKHU WKHLQYHVWPHQWPDQDJHUKDVFRPSOLHGZLWKWKHLQYHVWPHQWPDQDJHPHQWDJUHHPHQWDQG  DGXW\WRLQYHVWLJDWHDQ\RWKHUIDFWRUV ZKLFKPD\EHDURQZKHWKHUWKHLQYHVWPHQWPDQDJHULVVXLWDEOH 

7UXVW)XQGV 

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–'(6&5,37,212))$&,/,7,(6–(OHFWULF6\VWHP–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

673'HFRPPLVVLRQLQJ7UXVW  8QGHUWKH7H[DV3URSHUW\&RGHRWKHUDSSOLFDEOHODZDQGWKH6RXWK7H[DV3URMHFW'HFRPPLVVLRQLQJ7UXVW,QYHVWPHQW3ROLF\ 673 ,QYHVWPHQW3ROLF\ DSSURYHGE\WKH%RDUGWKH673'HFRPPLVVLRQLQJ7UXVWPD\EHLQYHVWHGDVIROORZV  IXQGVPD\EHLQYHVWHG LQLQYHVWPHQWVSHUPLVVLEOHE\ODZXQGHUWKH JXLGDQFHDQGUHJXODWLRQVLVVXHGE\WKH15&DQGXQGHUWKH 7H[DV3URSHUW\&RGH  WKH673'HFRPPLVVLRQLQJ7UXVW VLQYHVWPHQWVVKRXOGEHGLYHUVLILHGVXFKWKDW D QRPRUHWKDQRIWKHVHFXULWLHVKHOGPD\ EHLVVXHGE\RQHHQWLW\ZLWKWKHH[FHSWLRQRIWKHIHGHUDOJRYHUQPHQWLWVDJHQFLHVDQGLQVWUXPHQWDOLWLHVDQG E WKHSRUWIROLRVKDOO FRQWDLQ DW OHDVW  GLIIHUHQW LVVXHV RI VHFXULWLHV ZLWK PXQLFLSDO VHFXULWLHV DQG UHDO HVWDWH LQYHVWPHQW WUXVWV GLYHUVLILHG DV WR JHRJUDSKLFUHJLRQ  GHULYDWLYHVHFXULWLHVDUHOLPLWHGWRWKRVHZKRVHSXUSRVHLVWRHQKDQFHUHWXUQVRIWKH673'HFRPPLVVLRQLQJ 7UXVWZLWKRXWDFRUUHVSRQGLQJLQFUHDVHLQULVNRIWKHSRUWIROLR  VHFXULWLHVOHQGLQJWUDQVDFWLRQVPXVWEHFROODWHUDOL]HGDW   IL[HG LQFRPH VHFXULWLHV PD\ QRW EH UDWHG EHORZ %%% DQG%%% E\ 6 3 DQG )LWFK UHVSHFWLYHO\ RU %DDE\ 0RRG\ VDWWKHWLPHRISXUFKDVHDQGWKHRYHUDOOIL[HGLQFRPHSRUWIROLRPXVWEHUDWHGQROHVVWKDQ$E\6 3DQG)LWFKDQG$ E\0RRG\ V  HTXLW\VHFXULWLHVDUHSHUPLVVLEOHLQYHVWPHQWV D OLPLWHGWRDFDSRI L ZKHQWKHZHLJKWHGDYHUDJHUHPDLQLQJ OLIH RI WKH GHFRPPLVVLRQLQJ OLDELOLW\ H[FHHGV  \HDUV LL  ZKHQ WKH ZHLJKWHG DYHUDJH UHPDLQLQJ OLIH RI GHFRPPLVVLRQLQJ OLDELOLW\UDQJHVEHWZHHQ\HDUVDQG\HDUVDQGGXULQJDOO\HDUVLQZKLFKH[SHQGLWXUHVIRUGHFRPPLVVLRQLQJWKHQXFOHDUXQLWV RFFXUDQG LLL ZKHQWKHZHLJKWHGDYHUDJHUHPDLQLQJOLIHRIWKHGHFRPPLVVLRQLQJOLDELOLW\LVOHVVWKDQ\HDUVDQG E ZKHQ WKHHTXLWLHVDUHRIDW\SHQRWFRQVLGHUHGWREHVSHFXODWLYH  QRORDGFRPPLQJOHGIXQGVRIWKH8QLWHG6WDWHVLQFOXGLQJ,QYHVWPHQWV LQ)XQGVRI+HGJH)XQGVDQG,QYHVWPHQWVLQFRPPLQJOHG5HDO(VWDWH/LPLWHG3DUWQHUVKLSVRU)XQGVDQG  FRPPLQJOHGIXQGV WKDWLQFOXGH8QLWHG6WDWHVHTXLW\LQGH[HGIXQGVDFWLYHO\PDQDJHG8QLWHG6WDWHVHTXLW\IXQGVEDODQFHGIXQGVERQGIXQGVUHDO HVWDWHLQYHVWPHQWWUXVWVDQGLQWHUQDWLRQDOIXQGVDUHSHUPLVVLEOHLQYHVWPHQWVLIWKHFRPPLQJOHGIXQGVDUHFRQVLVWHQWZLWKWKHJRDOV VWDWHGLQWKH673,QYHVWPHQW3ROLF\&RPPLQJOHGIXQGV D PD\EHIRFXVHGRQVSHFLILFPDUNHWVHFWRUVRUFRQFHQWUDWHGLQDIHZ KROGLQJVRQO\DV QHFHVVDU\WREDODQFHWKH WUXVW VRYHUDOOLQYHVWPHQWSRUWIROLRPL[DQG E PD\FRQWDLQVRPH EHORZLQYHVWPHQW JUDGHERQGVEXWWKHRYHUDOOSRUWIROLRRIGHEWLQVWUXPHQWVVKDOOKDYHDTXDOLW\OHYHOPHDVXUHGTXDUWHUO\QRWEHORZDQ$UDWLQJ E\6 3DQG)LWFKUHVSHFWLYHO\DQG$E\0RRG\ V  7KH673'HFRPPLVVLRQLQJ7UXVWLVVSHFLILFDOO\SURKLELWHG  IURPLQYHVWLQJLQGHULYDWLYHVLIEHLQJXVHGWRLQFUHDVHWKHYDOXHRI WKHSRUWIROLRE\DQ\DPRXQWJUHDWHUWKDQWKHYDOXHRIWKHXQGHUO\LQJVHFXULWLHV  IURPWKHXVHRIOHYHUDJH ERUURZLQJ WRSXUFKDVH VHFXULWLHVRUWKHSXUFKDVHRIVHFXULWLHVRQPDUJLQ  IURPLQYHVWLQJLQFRUSRUDWHRUPXQLFLSDOGHEWVHFXULWLHVWKDWKDYHDERQG UDWLQJEHORZLQYHVWPHQWJUDGH EHORZ%%%E\6 3DQG)LWFKRU%DDE\0RRG\ V DWWKHWLPHWKDWWKHVHFXULWLHVDUHSXUFKDVHG DQGWKHDSSURSULDWHQHVVRIFRQWLQXLQJWRKROGDSDUWLFXODUGHEWVHFXULW\PXVWEHUHH[DPLQHGLIWKHGHEWUDWLQJRIWKHFRPSDQ\LQ 

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

EMPLOYEE BENEFITS

 &36(QHUJ\SURYLGHVKHDOWKGHQWDODQGYLVLRQEHQHILWVIRUHPSOR\HHVWKHLUVSRXVHVDQGFRYHUHGGHSHQGHQWVDVZHOODV3HQVLRQ DQG 2WKHU 3RVW (PSOR\PHQW %HQHILWV 23(%  DV GLVFXVVHG LQ WKH IROORZLQJ VHFWLRQ  7KH KHDOWK GHQWDO DQG YLVLRQ EHQHILWV SURYLGHGGXULQJDFWLYHHPSOR\PHQWDUHIXQGHGRQDSD\DV\RXJREDVLVZLWKSUHPLXPVIURPWKHSDUWLFLSDQWVDQG&36(QHUJ\ GHVLJQHGWRFRYHUFXUUHQW\HDUFODLPV 

PENSION AND OTHER POST EMPLOYMENT BENEFITS 

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–1RWH–(PSOR\HH3HQVLRQ3ODQDQG1RWH –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x 7KH QHW SHQVLRQ OLDELOLW\ LV WKH GLIIHUHQFH EHWZHHQ WKH DFWXDULDO SUHVHQW YDOXH RI SURMHFWHG SHQVLRQ EHQHILW SD\PHQWV DWWULEXWDEOHWRHPSOR\HHV SDVWVHUYLFH DQGWKH3ODQ V ILGXFLDU\ QHWSRVLWLRQ3UHYLRXVWRWKLV JXLGDQFHD OLDELOLW\ ZDV UHFRJQL]HGRQO\WRWKHH[WHQWWKDWFRQWULEXWLRQVPDGHWRWKHSODQZHUHH[FHHGHGE\WKHDFWXDULDOO\FDOFXODWHGFRQWULEXWLRQV x

7KHGLVFRXQWUDWHDSSOLHGWRIXWXUHEHQHILWVLVDEOHQGHGUDWH+RZHYHULIDSODQ VFXUUHQWDQGH[SHFWHGIXWXUHSODQDVVHWV DUHVXIILFLHQWWRIXQGIXWXUHEHQHILWVIRUWKHFXUUHQWHPSOR\HHVDQGUHWLUHHVWKHDSSURSULDWHGLVFRXQWUDWHLVWKHH[SHFWHG UDWHRIUHWXUQRQLQYHVWPHQWV,IWKHSODQ VSURMHFWHGQHWSRVLWLRQLVLQVXIILFLHQWWRIXQGIXWXUHEHQHILWVWKHGLVFRXQWUDWH DSSOLHGWRWKHXQIXQGHGSRUWLRQLVDQLQGH[UDWHIRUD\HDUWD[H[HPSWPXQLFLSDOERQGUDWHG$$RUKLJKHU



x

7KHDFWXDULDOFRVWPHWKRGWRDWWULEXWHWKHSUHVHQWYDOXHRIIXWXUHEHQHILWVWRSDVWDQGSUHVHQWSHULRGVLVWKHHQWU\DJHQRUPDO PHWKRGEDVHGRQDOHYHOSHUFHQWDJHRISD\UROO

x

0DQ\ FKDQJHV LQ WKH QHW SHQVLRQ OLDELOLW\ DUH UHFRJQL]HG LPPHGLDWHO\ DV SHQVLRQ H[SHQVH ZKLOH VRPH FKDQJHV DUH UHFRJQL]HGDVGHIHUUHGRXWIORZVDQGRULQIORZVRIUHVRXUFHVDQGDUHDPRUWL]HGWRSHQVLRQH[SHQVHRYHUSUHVFULEHGSHULRGV RIWLPHEDVHGRQWKHQDWXUHRIWKHGHIHUUHGLWHP

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—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




-DQXDU\ -DQXDU\ -DQXDU\ -DQXDU\

     

   

OPEB PLANS

   

   



 7KH23(%3ODQVDUHVLQJOHHPSOR\HUGHILQHGEHQHILWFRQWULEXWRU\SODQVWKDWDUHIXQGHGE\HPSOR\HHFRQWULEXWLRQVDQGDQQXDO FRQWULEXWLRQVIURP&36(QHUJ\DVGHWHUPLQHGE\WKH%RDUGLQDFFRUGDQFHZLWKDSSOLFDEOHODZ7KHDVVHWVRIWKH23(%3ODQVDUH VWDWHGDWIDLUPDUNHWYDOXH  0RVW&36(QHUJ\HPSOR\HHVDUHHOLJLEOHIRU*URXS+HDOWKDQG/LIH,QVXUDQFHEHQHILWVXSRQUHWLUHPHQW&36(QHUJ\ V/RQJ7HUP 'LVDELOLW\,QFRPH3ODQSURYLGHVLQFRPHWRHOLJLEOHHPSOR\HHVRI&36(QHUJ\ZKREHFRPHGLVDEOHG&36(QHUJ\HVWDEOLVKHGHDFK SODQDVDULVNSRRODVWKDWWHUPLVGHILQHGLQWKH7H[DV3ROLWLFDO6XEGLYLVLRQ(PSOR\HHV8QLIRUP*URXS%HQHILWV$FW %HQHILWV $FW &KDSWHU7H[DV/RFDO*RYHUQPHQW&RGHDVDPHQGHG7KHVHSODQVDUHHDFKRSHUDWHGDWDOOWLPHVDQGLQDOOUHVSHFWVDV DULVNSRROXQGHUWKH%HQHILWV$FW  5HIHUWRFRPSOHWHGLVFORVXUHVDW1RWHDQG56,DW$33(1',;%UHJDUGLQJ&36(QHUJ\ V1HW23(%2EOLJDWLRQDQG$QQXDO 23(%&RVWDQGUHODWHGGHWDLOVRISODQIHDWXUHVSODQIXQGLQJPHDVXUHPHQWVUHODWHGWR23(%DQGXQGHUO\LQJDFWXDULDODVVXPSWLRQV 

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email protected]        

+HDOWK3ODQ

'ROODUVLQWKRXVDQGV





 /LIH3ODQ

$FWXDULDO 9DOXDWLRQ'DWH

$FWXDULDO 9DOXHRI3ODQ $VVHWV D

-DQXDU\ -DQXDU\ -DQXDU\

   

$FWXDULDO $FFUXHG /LDELOLW\ $$/    E

8QIXQGHG$$/ 8$$/ ED

)XQGHG5DWLR DE

  

   

  

7KH $$/ FRQVLVWHG RI WKH OLDELOLW\ IRU ERWK UHWLUHG HPSOR\HHV DQG DFWLYH HPSOR\HHV 7KH $$/ IRU KHDOWK EHQHILWV SDLG WR UHWLUHG HPSOR\HHV ZDV  IRU -DQXDU\    PLOOLRQ IRU -DQXDU\   DQG  PLOOLRQ IRU -DQXDU\   ,Q DFFRUGDQFH ZLWK D 7HFKQLFDO %XOOHWLQ LVVXHG E\ *$6% LQ  WKH $$/ LV SUHVHQWHG H[FOXVLYH RI 0HGLFDUH 3DUW ' 6XEVLG\ SD\PHQWV UHFHLYHG IURP WKH IHGHUDO JRYHUQPHQW :LWK WKH 6XEVLG\ FRQVLGHUHG $$/ DW HDFK YDOXDWLRQ GDWH ZRXOG EH UHGXFHG E\  PLOOLRQ IRU   PLOOLRQ IRU  DQG  PLOOLRQ IRU 





'ROODUVLQWKRXVDQGV



$FWXDULDO 9DOXDWLRQ'DWH

$FWXDULDO 9DOXHRI3ODQ $VVHWV D

$FFUXHG /LDELOLW\ $$/ E

-DQXDU\ -DQXDU\ -DQXDU\

  

  

8QIXQGHG$$/ 8$$/  ED

)XQGHG5DWLR DE

     

  

&36 (QHUJ\ KDV VHOHFWHG WKH DJJUHJDWH FRVW PHWKRG IRU GHWHUPLQLQJ /LIH 3ODQ IXQGLQJ DPRXQWV 6LQFH WKLV PHWKRG GRHV QRW LGHQWLI\ RU VHSDUDWHO\ DPRUWL]H XQIXQGHG DFWXDULDO OLDELOLWLHV LQIRUPDWLRQ DERXW WKH IXQGHG VWDWXV DQG IXQGLQJ SURJUHVV KDV EHHQ SUHSDUHG XVLQJ WKH HQWU\DJH QRUPDO DFWXDULDO FRVW PHWKRG ZKLFK DSSUR[LPDWHV WKH IXQGLQJ SURJUHVV RI WKH SODQ 

  'LVDELOLW\3ODQ







$FWXDULDO 9DOXDWLRQ'DWH

'ROODUVLQWKRXVDQGV $FWXDULDO $FFUXHG 9DOXHRI3ODQ /LDELOLW\ $VVHWV $$/ D E

-DQXDU\ -DQXDU\ -DQXDU\

  

  

8QIXQGHG$$/ 8$$/  ED

)XQGHG5DWLR DE

  

  

&36 (QHUJ\ KDV VHOHFWHG WKH DJJUHJDWH FRVW PHWKRG IRU GHWHUPLQLQJ 'LVDELOLW\ 3ODQ IXQGLQJ DPRXQWV 6LQFH WKLV PHWKRG GRHV QRW LGHQWLI\ RU VHSDUDWHO\ DPRUWL]H XQIXQGHG DFWXDULDO OLDELOLWLHV LQIRUPDWLRQ DERXW WKH IXQGHG VWDWXV DQG IXQGLQJ SURJUHVV KDV EHHQ SUHSDUHG XVLQJ WKH HQWU\DJH QRUPDO DFWXDULDO FRVW PHWKRG ZKLFK DSSUR[LPDWHV WKH IXQGLQJ SURJUHVV RI WKH SODQ

    



7RWDO23(%3ODQV 

'ROODUVLQWKRXVDQGV







$FWXDULDO 9DOXDWLRQ'DWH

$FWXDULDO 9DOXHRI3ODQ $VVHWV D

$FFUXHG /LDELOLW\ $$/ E

-DQXDU\ -DQXDU\ -DQXDU\

  

  

8QIXQGHG$$/ 8$$/  ED

)XQGHG5DWLR DE

   

  

&36 (QHUJ\ KDV VHOHFWHG WKH DJJUHJDWH FRVW PHWKRG IRU GHWHUPLQLQJ 7RWDO 23(% IXQGLQJ DPRXQWV 6LQFH WKLV PHWKRG GRHV QRW LGHQWLI\ RU VHSDUDWHO\ DPRUWL]H XQIXQGHG DFWXDULDO OLDELOLWLHV LQIRUPDWLRQ DERXW WKH IXQGHG VWDWXV DQG IXQGLQJ SURJUHVV KDV EHHQ SUHSDUHG XVLQJ WKH HQWU\DJH QRUPDO DFWXDULDO FRVW PHWKRG ZKLFK DSSUR[LPDWHV WKH IXQGLQJ SURJUHVV RI WKH SODQ



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x RIRXUJHQHUDWLRQFDSDFLW\RU0:IURPUHQHZDEOHVOLNHVRODUDQGZLQG x $UHGXFWLRQRI0:RIRXUFRPPXQLW\ VGHPDQGIRUHOHFWULFLW\WRDYRLGWKHQHHGWREXLOGDGGLWLRQDOJHQHUDWLRQ x $ORZHUFDUERQLQWHQVLYHIOHHW–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x 0RUHWKDQQHZMREVKDYHEHHQFUHDWHGLQ6DQ$QWRQLR7KHVHMREVKDYHDQHVWLPDWHGDQQXDOSD\UROORIPLOOLRQ x &DSLWDOH[SHQGLWXUHVVWDQGDWPLOOLRQH[FHHGLQJDFRPPLWPHQWRIPLOOLRQE\ x 7KHWRWDODQQXDOHFRQRPLFLPSDFWWR6DQ$QWRQLRIURPWKHVHHIIRUWVKDVUHDFKHGELOOLRQ  2&,6RODU3RZHU'HYHORSHURZQHUDQGRSHUDWRURIVRODUSRZHUSODQWV2&,LVFXUUHQWO\HQJDJHGLQWKHGHYHORSPHQWRI PHJDZDWWVRIVRODUSRZHUWKURXJKWKHFRPELQHGXVHRIPXOWLSOHVRODUIDUPVLQ6DQ$QWRQLRDQGWKURXJKRXW7H[DV2IWKH 0:RIVRODUSRZHUEHLQJGHYHORSHGDSSUR[LPDWHO\0:DUHRSHUDWLRQDO2&,KDVH[HUFLVHGLWVRSWLRQWRVHOOIRXURILWVVRODU IDUPVWRWKLUGSDUWLHVapproved by CPS Energy. All of OCI’s obligations are assumed by the buyer. OCI has complied with all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

DESCRIPTION OF FACILITIES ELECTRIC SYSTEM 3RZHU*HQHUDWLRQ6RXUFHV

 &36(QHUJ\FXUUHQWO\RSHUDWHVQRQQXFOHDUHOHFWULFJHQHUDWLQJXQLWVIRXURIZKLFKDUHFRDOILUHGDQGRIZKLFKDUHJDVILUHG 6RPH RI WKH JDVILUHG JHQHUDWLQJ XQLWV PD\ DOVR EXUQ IXHO RLO GLHVHO  ZKLFK SURYLGHV IXHO IOH[LELOLW\ DQG JUHDWHU UHOLDELOLW\ &36(QHUJ\DOVRRZQVDLQWHUHVWLQWKH673 VWZRH[LVWLQJQXFOHDUJHQHUDWLQJ8QLWVDQG7KHVHQXFOHDUXQLWVVXSSOLHG RIWKH)<HOHFWULFV\VWHPQDWLYHORDG6HH6$1$1721,2(/(&75,&$1'*$66<67(06–'(6&5,37,21 2))$&,/,7,(6–(OHFWULF6\VWHP–1XFOHDUKHUHLQ7KHJHQHUDWLQJSODQWVDUHQRUPDOO\UHIHUUHGWRE\WKHSODQWQDPHDQGQXPEHU LH 'HHO\ IRU 'HHO\ XQLW  %UDXQLJ IRU %UDXQLJ XQLW    6HH 6$1 $1721,2 (/(&75,& $1' *$6 6<67(06 – '(6&5,37,212))$&,/,7,(6–(OHFWULF6\VWHP–*HQHUDWLQJ&DSDELOLW\KHUHLQ                    >7+(5(0$,1'(52)7+,63$*(,17(17,21$//</()7%/[email protected]                 

*HQHUDWLQJ&DSDELOLW\(     

  

  

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

6RODU39   6RODU39   6RODU39   6RODU39   6RODU39   6RODU39   6RODU39   6RODU39   6RODU39   6RODU39    

           

 7RWDO5HQHZDEOH3XUFKDVHG3RZHU 1DPHSODWH&DSDELOLW\   7RWDO&DSDELOLW\LQFOXGLQJ5HQHZDEOH3XUFKDVHG3RZHU



)XHO 1XFOHDU 1XFOHDU &RDO &RDO &RDO &RDO *DV *DV2LO *DV2LO *DV2LO *DV2LO *DV2LO *DV *DV *DV *DV *DV2LO *DV2LO *DV2LO *DV2LO *DV     :LQG :LQG :LQG :LQG :LQG :LQG :LQG /DQGILOO*DV /DQGILOO*DV



 

 
6XPPHU   1HW0D[ 7RWDO&DSDELOLW\0: &DSDELOLW\ 0:         1XFOHDU               &RDO                                             *DV2LO                                 :LQG      /DQGILOO *DV                              6RODU39        

   



 'DWDDVRI2FWREHU  6XPPHUQHWPD[FDSDELOLW\UHIOHFWVQHWVXPPHUUDWLQJIRU&36(QHUJ\RZQHGSODQWV  &XUUHQWQRPLQDOHOHFWULFUDWLQJ 0:H IRU&36(QHUJ\ VVKDUHRI673 6HH6$1$1721,2(/(&75,&$1'*$66<67(06–'(6&5,37,212) )$&,/,7,(6–(OHFWULF6\VWHP–3RZHU*HQHUDWLRQ6RXUFHV1XFOHDUKHUHLQ  6SUXFHUHWXUQHGWRIXOOFDSDFLW\UDWLQJDIWHUDWHPSRUDU\GHUDWLQJGXHWRDJHQHUDWRUOLPLW  'HHO\3ODQWLVVFKHGXOHGWREHGHDFWLYDWHGDWWKHHQGRIFDOHQGDU\HDU  &7PHDQV&RPEXVWLRQ7XUELQH3ODQWVUHQDPHG0%/ 0LOWRQ%/HH &70DUFK  7KH5LR1RJDOHV3ODQWZDVSXUFKDVHGRQ$SULO,QLWLDOO\DOORUDSRUWLRQRIWKH5LR1RJDOHV3ODQWFDSDFLW\KDGEHHQVROGLQWRWKHZKROHVDOHPDUNHW %HJLQQLQJLQ)LVFDO
&RDO3ODQWV  &RDOZLWKLWVUHODWLYHO\VWDEOHORZFRVWSURYLGHGRILWVWRWDOQHWDQQXDOJHQHUDWLRQLQ)LVFDO
*DV)XHO2LO3ODQWV  7KH6RPPHUV3ODQWORFDWHGDWWKH&DODYHUDV3RZHU6WDWLRQFRPSULVHVWZRODUJHVWHDPXQLWVFDSDEOHRIRSHUDWLQJRQHLWKHUQDWXUDO JDVRUIXHORLOSURYLGLQJIOH[LELOLW\LQDIXHO FRQVWUDLQHGVLWXDWLRQ6RPPHUVDQG6RPPHUV ZHUH LQVWDOOHGLQDQG UHVSHFWLYHO\6RPPHUVLVFDSDEOHRISURYLGLQJQHW0:RILQWHUPHGLDWHSHDNLQJFDSDFLW\WRWKH%(66RPPHUVLVFDSDEOH RISURYLGLQJQHW0:RILQWHUPHGLDWHSHDNLQJFDSDFLW\WRWKH%(6%RWKXQLWVDUHRIIHUHGWRWKH(5&27(QHUJ\0DUNHWDQG DUHVHOHFWHGWRRSHUDWHDVWKHPDUNHWHFRQRPLFVDQGORDGGHPDQGGLFWDWHV7KHXQLWVDUHW\SLFDOO\F\FOHGGDLO\GXULQJSHDNORDG PRQWKVLQWKHVXPPHUDQGZLQWHUEDVHGRQWKHORDGGHPDQGDQGPDUNHWSULFLQJIRUWKHGD\'XULQJWKHVKRXOGHUPRQWKVRIIDOO DQGVSULQJWKHXQLWVW\SLFDOO\RSHUDWHLQDVWDQGE\PRGHDYDLODEOHWRFRYHU&36(QHUJ\QDWLYHORDGREOLJDWLRQVDVZHOODVWRWDNH DGYDQWDJHRI(5&27PDUNHWRSSRUWXQLWLHV  7KH %UDXQLJ 3ODQW DQG $UWKXU 9RQ 5RVHQEHUJ 3ODQW DUH ORFDWHG DW WKH %UDXQLJ 3RZHU 6WDWLRQ VRXWKZHVW RI WKH &LW\ DQG VKDUH %UDXQLJ/DNH VFRROLQJFDSDFLW\7KH%UDXQLJ3ODQWKDVWKUHHVWHDPXQLWVWKDWFDQRSHUDWHRQHLWKHUQDWXUDOJDVRUIXHORLO%UDXQLJ %UDXQLJDQG%UDXQLJZHUHLQVWDOOHGLQDQGUHVSHFWLYHO\%UDXQLJ%UDXQLJDQG%UDXQLJDUHFDSDEOHRI SURYLGLQJDQGQHW0:UHVSHFWLYHO\RIFDSDFLW\WRWKH%(6$OOWKUHHXQLWVDUHW\SLFDOO\F\FOHGGDLO\GXULQJSHDN ORDGPRQWKVLQWKHVXPPHUDQGZLQWHU'XULQJWKHVKRXOGHUPRQWKVRIIDOODQGVSULQJWKHXQLWVW\SLFDOO\GRQRWUXQDVRIWHQDQG DUHLQVWDQGE\PRGHDYDLODEOHWRWDNHDGYDQWDJHRI(5&27PDUNHWRSSRUWXQLWLHV  7KH%UDXQLJ3ODQWDOVRKDVIRXUVLPSOHF\FOHFRPEXVWLRQWXUELQHV UHQDPHG0LOWRQ%/HH(DVW3ODQW ZKLFKSURYLGHTXLFNVWDUW SHDNLQJ HQHUJ\ IRU &36(QHUJ\ V JHQHUDWLRQ SRUWIROLR DV ZHOO DV %ODFN 6WDUW FDSDELOLW\ WR HQVXUH RXU JHQHUDWLRQ DVVHWV FDQ H[SHGLWLRXVO\FRPHRQOLQHLQDQRXWDJHVLWXDWLRQ7KH0LOWRQ%/HH(DVW3ODQWZDVLQVWDOOHGLQ(DFKRIWKHIRXUXQLWVLV FDSDEOHRISURYLGLQJQHW0:RIFDSDFLW\WRWKH%(6(DFKXQLWFRQVLVWVRIDJHQHUDWRUGULYHQE\D*HQHUDO(OHFWULF *(  /0&RPEXVWLRQ7XUELQHDHURGHULYDWLYH7KHVHFRPEXVWLRQWXUELQHXQLWVPD\EHIXHOHGZLWKHLWKHUJDVRUGLHVHOPDNLQJWKHP YHU\IOH[LEOHDQGDEOHWRWDNHDGYDQWDJHRIFRQVWUDLQHGHQHUJ\VLWXDWLRQVLQWKH(5&27PDUNHW7KHXQLWVDUHRSHUDWHGDVF\FOLQJ SHDNLQJXQLWVDQGDUHXWLOL]HGWRSURYLGHUHOLDEOHDQGYDOXDEOHHQHUJ\LQKLJKGHPDQGSHULRGVDVZHOODV&36(QHUJ\ VDQFLOODU\ VHUYLFHREOLJDWLRQV  7KH$UWKXU9RQ5RVHQEHUJ $95 3ODQWORFDWHGDGMDFHQWWRWKH%UDXQLJ3ODQWXVHVFRPELQHGF\FOHWHFKQRORJ\WKDWLVWR PRUHIXHOHIILFLHQWWKDQRWKHUJDVJHQHUDWLRQWHFKQRORJLHV DQGSURYLGHVDFRPSHWLWLYHORZKHDWUDWHDVVHWIRU&36(QHUJ\ 7KUHHJHQHUDWRUVFRPELQHWRSURYLGHQHW0:RIUHOLDEOHFRPSHWLWLYHFDSDFLW\WRWKH%(67KHSODQWFRQVLVWVRIWZR*()$ )UDPH&RPEXVWLRQ7XUELQHVGULYLQJRQHJHQHUDWRUHDFKDQGD*('6WHDP7XUELQHGULYLQJDQRWKHUJHQHUDWRU7KHH[KDXVWKHDW IURPERWKWXUELQHVLVXVHGWRJHQHUDWHVWHDPWRGULYHWKHVWHDPWXUELQHJHQHUDWRU7KHSODQWFDQRSHUDWHLQD[FRQILJXUDWLRQ ZLWKRQHFRPEXVWLRQWXUELQHDQGWKHVWHDPWXUELQHRUD[FRQILJXUDWLRQZLWKERWKFRPEXVWLRQWXUELQHVLQVHUYLFHDORQJZLWKWKH VWHDPWXUELQHJLYLQJLWWKHIOH[LELOLW\WRPD[LPL]HLWVYDOXH  7KH0LOWRQ%/HH:HVW3RZHU6WDWLRQORFDWHGLQVRXWKZHVW%H[DU&RXQW\KDVIRXUDGGLWLRQDOTXLFNVWDUWQDWXUDOJDVVLPSOHF\FOH FRPEXVWLRQWXUELQHVWKDWLQFOXGH%ODFN6WDUWFDSDELOLW\WRHQVXUHRXUJHQHUDWLRQDVVHWVFDQH[SHGLWLRXVO\FRPHRQOLQHLQDQRXWDJH VLWXDWLRQDQGSURYLGLQJQHW0:RIIOH[LEOHFDSDFLW\IRU&36(QHUJ\7KH0LOWRQ%/HH:HVW3ODQWZDVLQVWDOOHGLQ 

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– '(6&5,37,21 2) )$&,/,7,(6 – (OHFWULF 6\VWHP –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–'(6&5,37,212))$&,/,7,(6 –(OHFWULF6\VWHP–3RZHU*HQHUDWLRQ6RXUFHV–&RDO3ODQWVKHUHLQ 

1XFOHDU  1XFOHDULV&36(QHUJ\ VRWKHUEDVHHQHUJ\RSWLRQSURYLGLQJDERXWRI&36(QHUJ\ VWRWDOQHWDQQXDOJHQHUDWLRQLQILVFDO\HDU 6RXWK7H[DV3URMHFW 673 LVDWZRXQLWQXFOHDUSRZHUSODQWZLWK8QLWDQG8QLW RU673DQG673 KDYLQJD QRPLQDORXWSXWRIDSSUR[LPDWHO\0:HDFK673LVORFDWHGRQDDFUHVLWHLQ0DWDJRUGD&RXQW\7H[DVQHDUWKH7H[DV *XOI&RDVWDSSUR[LPDWHO\PLOHVIURP6DQ$QWRQLR&36(QHUJ\FXUUHQWO\RZQVRIWKHVHXQLWV3DUWLFLSDQW2ZQHUVKLS 3DUWLFLSDQWV LQ673DQG673DQGWKHLUVKDUHVWKHUHLQDUHDVIROORZV  

2ZQHUVKLS (IIHFWLYH)HEUXDU\  



 3DUWLFLSDQWV 15*(QHUJ\ 15*  &36(QHUJ\ &LW\RI$XVWLQ$XVWLQ(QHUJ\ 

    

0: DSSUR[LPDWH     

   ,Q7H[DV*HQFRKROGHURIDLQWHUHVWLQ673ZDVDFTXLUHGE\15*(QHUJ\,QF15*(QHUJ\,QFKROGVLWVLQWHUHVWLQ673DQG673LQ15*6RXWK7H[DV/3 

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

6WDWHPHQW *(,6 IRULWV1(3$DQDO\VLVRIWKH6738QLWVDQGOLFHQVLQJGHFLVLRQ7KHHQYLURQPHQWDOJURXSDJUHHGWKDWWKH PDWWHUUHODWHGWRWKH&RQWLQXHG6WRUDJH5XOHEHKHOGLQDEH\DQFHSHQGLQJWKHRXWFRPHRIWKHDSSHDORIWKH6WDWHRI1HZ
&DOHQGDU




 



8QLW 8QLW

 

 

 

 

 

7RWDO











 &DSDFLW\)DFWRUEDVHVRQQDPHSODWHUDWLQJRI0:SHUXQLW

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

5HQHZDEOH5HVRXUFHV  $V RI 2FWREHU   &36(QHUJ\ V UHQHZDEOH HQHUJ\ FDSDFLW\ WRWDOV 0: LQ VHUYLFH ZLWK DQRWKHU 0: XQGHU FRQWUDFWDQGLQYDU\LQJOHYHOVRISURMHFWFRQVWUXFWLRQ&36(QHUJ\KDVRQHRIWKHVWURQJHVWUHQHZDEOHHQHUJ\SURJUDPVLQ7H[DV ZLWK D UHQHZDEOH FDSDFLW\ XQGHU FRQWUDFW WRWDOLQJ 0:  6HH &(57$,1 )$&7256 $))(&7,1* 7+( (/(&75,& 87,/,7<,1'8675<–(/(&75,&87,/,7<5(6758&785,1*,17(;$6(QYLURQPHQWDO5HVWULFWLRQVRI6HQDWH%LOODQG 2WKHU5HODWHG5HJXODWLRQVKHUHLQ 

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– 675$7(*,& ,1,7,$7,9(6 – (FRQRPLF DQG 5HODWHG (GXFDWLRQDO 'HYHORSPHQWVKHUHLQ  &36(QHUJ\ H[HFXWHG D 0DVWHU $JUHHPHQW ZLWK 2&, 6RODU 3RZHU IRU 0: IURP QLQH IDFLOLWLHV H[SHFWHG WR EH EXLOW DQG RSHUDWLRQDO E\   6HH 6$1$1721,2(/(&75,&$1'*$66<67(06 –675$7(*,&,1,7,$7,9(6 –(FRQRPLFDQG 5HODWHG(GXFDWLRQDO'HYHORSPHQWVKHUHLQ(DFKLQGLYLGXDOIDFLOLW\FRPSULVLQJ2&,6RODU V0:ZLOOKDYHLWVRZQ\HDU 

3XUFKDVH 3RZHU $JUHHPHQW 33$   2&, V $ODPR  SURMHFW IDFLOLW\ RI  0: DFKLHYHG FRPPHUFLDO RSHUDWLRQ LQ 'HFHPEHU6W+HGZLJ $ODPR IRU0:DFKLHYHGFRPPHUFLDORSHUDWLRQLQ0DUFK(FOLSVH $ODPR IDFLOLW\DW 0:DFKLHYHGFRPPHUFLDORSHUDWLRQLQ$XJXVW:DO]HP $ODPR SURMHFWDW0:DFKLHYHGFRPPHUFLDORSHUDWLRQ LQ-DQXDU\7KH8YDOGH +HOLRV–$ODPR IDFLOLW\DW0:EHFDPHRSHUDWLRQDODWWKHHQGRI'HFHPEHU7KH+DVNHOO 6RODUD–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

3HDN'HPDQGDQG1DWLYH/RDG  ,QWKH JURZLQJ &36(QHUJ\ VHUYLFH WHUULWRU\DUHFRUGV\VWHPSHDNGHPDQGRI 0:ZDVVHWRQ $XJXVWRQKRXU HQGLQJSP$WWKHWLPHRIWKHSHDN&36(QHUJ\ZDVUHFHLYLQJ0:RIUHQHZDEOHFDSDFLW\KHOSLQJWRPHHWWKHSHDN GHPDQG$ORQJZLWKWKH0:RIIRVVLOIXHODQGQXFOHDUFDSDFLW\DWRWDORI0:ZDVDYDLODEOHWRPHHW&36(QHUJ\ V QDWLYHORDGVXPPHUSHDNLQJQHHGV6HH6$1$1721,2(/(&75,&$1'*$66<67(06–'(6&5,37,212))$&,/,7,(6 –(OHFWULF6\VWHP–*HQHUDWLQJ&DSDELOLW\KHUHLQ 

5HSODFHPHQW3RZHUIRU(YHQWV  'HSHQGLQJXSRQWKHWLPHRIWKH\HDUDQGDFWXDOFXVWRPHUGHPDQGXQSODQQHGRXWDJHVPD\RUPD\QRWUHVXOWLQDQHHGWRSXUFKDVH SRZHUIURPRWKHUSURYLGHUVRQWKH(5&27ZKROHVDOHPDUNHW:KLOHUHSODFHPHQWSRZHUFDQEHPRUHH[SHQVLYHWR&36(QHUJ\ V FXVWRPHUVWKDQJHQHUDWLRQIURPLWVRZQIDFLOLWLHV&36(QHUJ\ VH[LVWLQJUDWHVWUXFWXUHDOORZVWKHFRVWRIUHSODFHPHQWSRZHUWREH IXQGHG WKURXJK LWV PRQWKO\ HOHFWULF IXHO DGMXVWPHQW IHH  $V D UHVXOW WKHUH ZDV QR PDWHULDO DGYHUVH HIIHFW RQ WKH ILQDQFHV RI &36(QHUJ\IURPUHSODFHPHQWSRZHUSXUFKDVHV 

/HDVH7UDQVDFWLRQ  7KH&LW\ZDVDSDUW\WRDWUDQVDFWLRQHQWHUHGLQWRLQ-XQHLQYROYLQJLWV6SUXFHXQLWSXUVXDQWWRZKLFKVXFKIDFLOLW\ZDV VXEMHFW WR D YDULHW\ RI FRQWUDFWXDO DUUDQJHPHQWV LQFOXGLQJ D VHULHV RI OHDVH WUDQVDFWLRQV FROOHFWLYHO\ WKH /HDVH RU WKH 7UDQVDFWLRQV ZLWK&36(QHUJ\DVOHVVHH7KLV/HDVHZDVFRPSOH[LQYROYHGYROXPLQRXVGRFXPHQWDWLRQDQGQXPHURXVSDUWLHV DQG WKH GLVFXVVLRQ KHUHLQ LV SURYLGHG SULPDULO\ IRU WKH SXUSRVH RI SURYLGLQJ LQIRUPDWLRQ FRQFHUQLQJ WKH ILQDQFLDO LPSDFW RQ &36(QHUJ\IURPWKHWHUPLQDWLRQRIWKLV/HDVHDVGLVFORVHGLQWKHIROORZLQJSDUDJUDSK 6HHDOVR$33(1',;%–&LW\3XEOLF 6HUYLFH–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–&203/,$1&($1'5(*8/$7,21–(QYLURQPHQWDO0DWWHUVKHUHLQ  )RUGHVFULSWLRQRIRWKHUDVVHWVRIWKH6\VWHPVWKDWVXSSRUWJHQHUDWLRQSOHDVHVHH6$1$1721,2(/(&75,&$1'*$66<67(06 –'(6&5,37,212))$&,/,7,(6–)XHO6XSSO\ 

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

)RU)LVFDO
7UDQVPLVVLRQ6\VWHP  &36(QHUJ\PDLQWDLQVDWUDQVPLVVLRQQHWZRUNIRUWKHPRYHPHQWRIODUJHDPRXQWVRIHOHFWULFSRZHUIURPJHQHUDWLQJVWDWLRQVWR YDULRXVSDUWVRIWKHVHUYLFHDUHDWRRUIURPQHLJKERULQJXWLOLWLHVDQGIRUZKROHVDOHHQHUJ\WUDQVDFWLRQVDVUHTXLUHG7KLVQHWZRUN LVFRPSRVHGRIDQGNLORYROW N9 OLQHVZLWKDXWRWUDQVIRUPHUVWRSURYLGHWKHQHFHVVDU\IOH[LELOLW\LQWKHPRYHPHQWRI EXON SRZHU  &36 (QHUJ\ LV FXUUHQWO\ LQ WKH SURFHVV RI FRPSOHWLQJ ILYH WUDQVPLVVLRQ SURMHFWV WR HQKDQFH DQG JURZ LWV FXUUHQW WUDQVPLVVLRQQHWZRUN 

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– &86720(56$1'5$7(6–&XVWRPHU5DWHV–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–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–1XFOHDU'HFRPPLVVLRQLQJ–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– ),1$1&,$/ 0$1$*(0(172)7+(6<67(06 ,QYHVWPHQWV –7UXVW)XQGV –673'HFRPPLVVLRQLQJ)XQGVDQG0DVWHU7UXVW 7&& )XQGHG KHUHLQIRULQIRUPDWLRQFRQFHUQLQJWKHYDOXHRILQYHVWPHQWVLQWKHGHFRPPLVVLRQLQJWUXVWV$FWXDOGHFRPPLVVLRQLQJFRVWV FRXOG YDU\ VXEVWDQWLDOO\ IURP WKH HVWLPDWH RI VXFK FRVWV GHSHQGLQJ RQ IXWXUH UHJXODWRU\ UHTXLUHPHQWV WKH PHWKRG XVHG IRU GHFRPPLVVLRQLQJDQGRWKHUIDFWRUVDQGWKHDPRXQWVLQWKHGHFRPPLVVLRQLQJWUXVWVPD\RUPD\QRWEHDGHTXDWHWRSD\WKHVHFRVWV 6HH6$1$1721,2(/(&75,&$1'*$66<67(06–),1$1&,$/0$1$*(0(172)7+(6<67(06,QYHVWPHQWV– 7UXVW)XQGV–673'HFRPPLVVLRQLQJ7UXVWKHUHLQ 

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

2Q$XJXVWLQ0DLQH
'2(WRUHLPEXUVHIRUFHUWDLQFRVWVLQFXUUHGWKURXJK'HFHPEHU,QHDUO\1RYHPEHU67312&DQGLWVRXWVLGHFRXQVHO UHFHLYHGQRWLFHIURPWKH'HSDUWPHQWRI-XVWLFHWKDWWKH'2(ZDVRIIHULQJWRH[WHQGWKHWHUPVRIWKHVHWWOHPHQWWRDOORZIRUWKH '2(WRUHLPEXUVHIRUFRVWVLQFXUUHGWKURXJK'HFHPEHU 7KHVHWWOHPHQWH[WHQVLRQ DGGHQGXP ZDVH[HFXWHGRQ-DQXDU\ DQGH[WHQGVWKHWHUPRIWKH6SHQW)XHO6HWWOHPHQW$JUHHPHQWZLWKWKH'2(WKURXJK'HFHPEHU$GGLWLRQDOO\,Q UH$LNHQ&RXQW\)G '&&LU WKHFRXUWRUGHUHGWKH15&WRFRPSO\ZLWKWKH1:3$DQGXVHDYDLODEOHIXQGVWR resume consideration of the DOE’s Yucca Mountain application as a possible depository.  15& VWDII FRQFOXGHG WKH
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– '(6&5,37,21 2) )$&,/,7,(6 – (OHFWULF 6\VWHP – *HQHUDWLQJ &DSDELOLW\DQG*HQHUDWLQJ6WDWLRQ(YHQWV–5LR1RJDOHVKHUHLQ &36(QHUJ\PDQDJHPHQWLVSXUVXLQJDPXOWLIDFHWHGVWUDWHJ\ ZLWKWKH JRDORI PDLQWDLQLQJ D ZHOOEDODQFHGSRUWIROLRLQDGGLWLRQWRDQDO\]LQJWUDGLWLRQDOJHQHUDWLRQVRXUFHVDQGDJJUHVVLYHO\ JURZLQJ LWV UHQHZDEOH HQHUJ\ SRUWIROLR DV GHVFULEHG LQ WKH *HQHUDWLQJ &DSDELOLW\ WDEOH DQG H[SDQGLQJ LWV HIIRUWV WRZDUGV FRPPXQLW\ZLGHHQHUJ\HIILFLHQF\DQGFRQVHUYDWLRQ7KHVHPLWLJDWLRQHIIRUWVDUHDOVRUHIHUUHGWRDVWKH WK)XHODQGDUHYHU\ LPSRUWDQWWR&36(QHUJ\ VVWUDWHJLFHQHUJ\SODQVDQGVSHFLILFDOO\WRLWVQHZJHQHUDWLRQQHHGV6HH6$1$1721,2(/(&75,& $1'*$66<67(06–&86720(56$1'5$7(6–&XVWRPHU5DWHV–)XHODQG*DV&RVW$GMXVWPHQWKHUHLQ$GGLWLRQDOO\ &36(QHUJ\PDQDJHPHQWKDVH[SORUHGDQGFRQWLQXHVWRFRRSHUDWLYHO\GHYHORSRSSRUWXQLWLHVZLWKWKH&LW\&RXQFLOIRUSRWHQWLDO FKDQJHVLQRUGLQDQFHVFRGHVDQGDGPLQLVWUDWLYHUHJXODWLRQVIRFXVHGRQHQFRXUDJLQJFRPPHUFLDODQGUHVLGHQWLDOXWLOLW\FXVWRPHUV EXLOGHUVFRQWUDFWRUVDQG RWKHU PDUNHWSDUWLFLSDQWVWRLPSOHPHQWHQHUJ\FRQVHUYDWLRQ PHDVXUHV )RUDGGLWLRQDOLQIRUPDWLRQRQ &36(QHUJ\ V HQHUJ\ HIILFLHQF\ DQG FRQVHUYDWLRQ SURJUDP VHH 6$1 $1721,2 (/(&75,& $1' *$6 6<67(06 – &203/,$1&($1'5(*8/$7,21–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

1XFOHDU  ,QPLG&36(QHUJ\PDQDJHPHQWGLUHFWHGWKDWVWDIIFRQGXFWDQLQLWLDOLQYHVWLJDWLRQVWXG\DQGDQDO\VLVRIDGGLWLRQDOQXFOHDU FDSDFLW\DVRQHW\SHRISRVVLEOHJHQHUDWLRQLQIUDVWUXFWXUH,Q&36(QHUJ\UHFHLYHG%RDUGDSSURYDOWRSDUWLFLSDWHLQWKHHDUO\ GHYHORSPHQWSKDVHRIWZRDGGLWLRQDOQXFOHDUSURMHFWVWKDWLQYROYHGWKLUGSDUW\FRRZQHUV7KHILUVWSRVVLEOHQXFOHDUSURMHFWZDV GHYHORSPHQWRIWZRDGGLWLRQDOUHDFWRUVDWWKH673VLWHDOVRNQRZQDV673DQG6737KHVHFRQGSRVVLEOHQXFOHDUSURMHFWZDVD SURSRVHGQHZWZRXQLWIDFLOLW\WHQWDWLYHO\ORFDWHGLQ9LFWRULD&RXQW\ZKLFKLVDOVRORFDWHGLQ6RXWK7H[DV  ,Q-XQH&36(QHUJ\PDQDJHPHQWSURYLGHGWKH%RDUGLWVIRUPDODVVHVVPHQWDQGUHFRPPHQGDWLRQVFRQFHUQLQJWKHVHRSWLRQV FRPSDUHGWRRWKHUSRVVLEOHQHZJHQHUDWLRQW\SHVLQFOXGLQJWKHILUVWSXEOLFHVWLPDWHRIWKHFRVWRIWKHILUVWSRVVLEOHSURMHFWDW ELOOLRQLQFOXVLYHRIILQDQFLQJFRVWV5HSRUWVRIKLJKHUFRVWHVWLPDWHVKRZHYHUUHVXOWHGLQUHFRQVLGHUDWLRQRIWKHDGYLVDELOLW\RI SDUWLFLSDWLQJLQWKH673DQG6733URMHFWDQGXOWLPDWHO\LQ&36(QHUJ\ VGHFLVLRQWROLPLWSDUWLFLSDWLRQLQIXUWKHUGHYHORSPHQW RI 673 DQG 673  ,Q D VHWWOHPHQW QHJRWLDWHG ZLWK 15* DQG WKH RWKHU SDUWLFLSDQWV LQ WKH GHYHORSPHQW RI 673 DQG 673 &36(QHUJ\UHFHLYHGDRZQHUVKLSLQWHUHVWLQWKHFRPELQHG673DQG673&36(QHUJ\LVQRWOLDEOHIRUDQ\673DQG 673 3URMHFW GHYHORSPHQW FRVWV LQFXUUHG DIWHU -DQXDU\ KRZHYHU RQFH WKH QHZ XQLWV UHDFK FRPPHUFLDO RSHUDWLRQ &36(QHUJ\ZLOOEHUHVSRQVLEOHIRULWVVKDUHRIRQJRLQJFRVWVWRRSHUDWHDQGWRPDLQWDLQWKHXQLWV&36(QHUJ\ZLOODOVR UHFHLYHWZRPLOOLRQLQVWDOOPHQWSD\PHQWVXSRQDZDUGRID'2(ORDQJXDUDQWHHWR1XFOHDU,QQRYDWLRQ1RUWK$PHULFD//& 1,1$ D15*7RVKLEDMRLQWYHQWXUH1,1$DOVRDJUHHGDQGKDVVXEVWDQWLDOO\PDGHDFRQWULEXWLRQRIPLOOLRQRYHUD IRXU\HDU SHULRG WR WKH 5HVLGHQWLDO (QHUJ\ $VVLVWDQFH 3DUWQHUVKLS ZKLFK SURYLGHV HPHUJHQF\ ELOO SD\PHQW DVVLVWDQFH WR ORZ LQFRPH FXVWRPHUV LQ WKH &LW\ DQG %H[DU &RXQW\  ,Q $XJXVW  7RVKLED DQQRXQFHG WKDW LW SODQQHG WR ZULWH GRZQ LWV VHPLFRQGXFWRUKRPHDSSOLDQFHDQGQXFOHDUEXVLQHVVXQLWVIROORZLQJDQLQYHVWLJDWLRQLQWRDFFRXQWLQJLVVXHVWKDWKDYHUHVXOWHGLQ WKHQHHGIRU7RVKLEDWRUHVWDWHWKHLUSDVWILQDQFLDOUHVXOWV 2Q$SULOPHGLDUHSRUWVLQGLFDWHGWKHSUHOLPLQDU\RSHUDWLQJ ORVVDIWHULWZURWHGRZQWKHYDOXHRI:HVWLQJKRXVHQXFOHDUSRZHUVXEVLGLDU\ZDVELOOLRQ3UHYLRXVO\LQ15*DQQRXQFHG LWKDGZULWWHQRIILWVLQYHVWPHQWLQ673DQG6732Q2FWREHUWKH15&LVVXHGDSUHVVUHOHDVHLQGLFDWLQJWKDW15&VWDII KDGFRPSOHWHGLWV)LQDO6DIHW\(YDOXDWLRQ5HSRUW UHSRUW IRUWKH&RPELQHG/LFHQVHV &2/ IRUWKHSURSRVHG673DQG673 7KH15&VWDIIZLOOSURYLGHWKHUHSRUWDORQJZLWKWKH)LQDO(QYLURQPHQWDO,PSDFW6WDWHPHQWRQWKHDSSOLFDWLRQWRWKH15&IRUWKH PDQGDWRU\KHDULQJSKDVHRIWKHOLFHQVLQJSURFHVV7KH0DQGDWRU\+HDULQJVWRRNSODFHRQ1RYHPEHUZKHQWKH15& VWDIISURYLGHGWKH)LQDO6DIHW\(YDOXDWLRQ5HSRUWDQG)LQDO(QYLURQPHQWDO,PSDFW6WDWHPHQWRQWKHDSSOLFDWLRQWRWKH&RPPLVVLRQ 2Q)HEUXDU\WKH15&FRPPLVVLRQHUVDXWKRUL]HGLVVXDQFHRIWKH&2/IRU673DQG673DQGWKHOLFHQVHVZHUHLVVXHGRQ )HEUXDU\$QQXDOO\&36(QHUJ\SHUIRUPVDWKRURXJKUHǦHYDOXDWLRQRILWVLQYHVWPHQWLQWKH673DQG673WRUHDVVHVV WKHRQJRLQJYLDELOLW\RIWKHSURMHFWDQGWKHDSSURSULDWHQHVVRIFRQWLQXLQJWRUHSRUWWKHFRVWRIWKHSURMHFWRQLWV6WDWHPHQWVRI1HW Position. Despite the project having secured the NRC’s authorization for issuance of the COL, in January 2016, &36 (QHUJ\ FRQFOXGHGWKDWDVDUHVXOWRIVXVWDLQHGFKDQJHVLQDQXPEHURIHQYLURQPHQWDODQGHFRQRPLFIDFWRUVGLUHFWO\DIIHFWLQJWKHSURMHFWHG HFRQRPLFIHDVLELOLW\RIFRPSOHWLQJFRQVWUXFWLRQRI6738QLWVDQGWKHSURMHFWH[SHULHQFHGDSHUPDQHQWLPSDLUPHQW&36(QHUJ\ GHWHUPLQHGLWDSSURSULDWHWRZULWHRIIWKHHQWLUHPLOOLRQLQYHVWPHQWLQ6738QLWVDQG7KHLPSDLUPHQWORVVZDVUHSRUWHG as an extraordinary item on CPS Energy’s Statements of Revenues, Expenses, and Changes in Net Position for the period ending -DQXDU\7KLVQRQFDVKWUDQVDFWLRQGLGQRWLPSDFW&36(QHUJ\’s debt service coverage ratio; however, there was a resulting LQFUHDVHIURPWRLQWKHGHEWWRGHEWDQGQHWSRVLWLRQUDWLRDW-DQXDU\*RLQJIRUZDUG&36(QHUJ\FRQWLQXHV WRUHWDLQDOHJDOLQWHUHVWLQ6738QLWVDQG  ,Q DGGLWLRQ WR WKH 673 DQG 673 &36(QHUJ\ H[SORUHG DQRWKHU SRWHQWLDO QXFOHDU SURMHFW ZLWK ([HORQ  ,Q 'HFHPEHU  &36(QHUJ\DQG ([HORQ VLJQHG DQ DJUHHPHQW JUDQWLQJ &36(QHUJ\ DQ RSWLRQ WR SDUWLFLSDWH LQ D SRVVLEOH MRLQW LQYHVWPHQW LQ D QXFOHDUSRZHUHGHOHFWULFJHQHUDWLRQIDFLOLW\LQVRXWKHDVW7H[DV ([HORQ3URMHFW 2Q$XJXVW([HORQDQQRXQFHGWKDW WKH\KDGQRWLILHGWKH15&WKDWWKH\LQWHQGHGWRZLWKGUDZWKH(DUO\6LWH3HUPLWDSSOLFDWLRQHIIHFWLYHO\HQGLQJGHYHORSPHQWRIWKH ([HORQ3URMHFW&36(QHUJ\ZURWHRIILWVPLOOLRQLQYHVWPHQWLQWKH([HORQ3URMHFWGXULQJWKHWKLUGTXDUWHURI)LVFDO
*HQHUDWLQJ6WDWLRQ(YHQWV  ,QDGGLWLRQWRURXWLQHSODQQHGJHQHUDWLRQ PDLQWHQDQFHDQGUHSDLUVFRQGXFWHG IURPWLPHWRWLPH WKHUH ZHUH VHYHUDO XQIRUHVHHQ HYHQWVDWWKHSRZHUJHQHUDWLRQIDFLOLWLHVWKDWRFFXUUHGGXULQJSDVW\HDUV7KRVHXQSODQQHGHYHQWVWKDWKDGSRWHQWLDOILQDQFLDOLPSDFW WR &36(QHUJ\ JUHDWHUWKDQPLOOLRQ LQFOXGLQJFRVWVWRDGGUHVVORVVRIUHYHQXHDQGFRVWVRIUHSODFHPHQWORDG DUHKHUHDIWHU GHVFULEHG 

%UDXQLJ  2Q0DUFK%UDXQLJZDVIRUFHGRIIOLQHGXHWRKLJKWXUELQHEHDULQJYLEUDWLRQV7KHWXUELQHEHDULQJVZHUHUHSDLUHGDQG WKHXQLWZDVUHOHDVHGIRUGLVSDWFKRQ$SULO  

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

'HHO\  2Q$XJXVW'HHO\ZDVGHUDWHGWR0:VQHWGXHWRHOHYDWHGFRQGHQVHUEDFNSUHVVXUH3ODQWSHUVRQQHOLQYHVWLJDWHGWKH LVVXHDQGGHWHUPLQHGWKDWWKHWXUELQHVWHDPVHDOVQHHGWREHUHSODFHG7KHXQLWZLOOEHUHWXUQHGWRIXOOORDGFDSDFLW\IROORZLQJ these replacements, which are scheduled to occur during the unit’s planned overhaul beginning February 3, 2017 and ending on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

6RPPHUV  2Q$XJXVW6RPPHUVZDVGHUDWHGWR0:VQHWGXHWRFRQGHQVDWHIORZLVVXHV3ODQWSHUVRQQHOLQYHVWLJDWHGWKHLVVXH DQGGHWHUPLQHGWKDWWKHGHUDWHZDVGXHWRUHGXFed performance from one of the unit’s condensate pumps. The unit will be returned to full load capacity following the replacement of the condensate pump, which is scheduled to occur during the unit’s planned RYHUKDXOEHJLQQLQJ-DQXDU\DQGHQGLQJRQ)HEUXDU\  2Q0DUFK6RPPHUVH[SHULHQFHGDJHQHUDWRUJURXQGIDXOWGXHWRDIDLOHGLVRODWHGSKDVHEXVFRQQHFWLRQUHVXOWLQJLQD XQLWWULSDQGDZHHNIRUFHGRXWDJHWRUHSDLUWKHGDPDJHGFRPSRQHQWV'HWDLOHGHOHFWULFDOWHVWLQJZDVSHUIRUPHGRQWKHJHQHUDWRU DQGWUDQVIRUPHUVZKLFKUHYHDOHGQRGDPDJHWRWKHVHDVVHWV7KHFRQQHFWLRQFRPSRQHQWVZHUHUHSDLUHGDQGWKHXQLWZDVUHWXUQHG WRVHUYLFHRQ0D\    

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

2Q'HFHPEHU673UHDFWRUSRZHUZDVORZHUHGIURPWRWRSHUIRUPUHFDOLEUDWLRQRIWKHXOWUDVRQLFIHHGZDWHU IORZ 87) PHDVXUHPHQWV\VWHP(DUOLHULQ'HFHPEHUZKLOH673ZDVVKXWGRZQLQDVFKHGXOHGUHIXHOLQJRXWDJHDVLPLODU LVVXHZDVLGHQWLILHGZLWKWKH67387)PHDVXUHPHQWV\VWHP7KHH[WHQWRIFRQGLWLRQLQYHVWLJDWLRQLGHQWLILHGWKHLVVXHLQ673 )ROORZLQJUHFDOLEUDWLRQRIWKH673DQG67387)V\VWHPVLQ-DQXDU\UHDFWRUSRZHUZDVLQFUHDVHGWRLQERWK8QLWV +RZHYHU WKH JHQHUDWRU HOHFWULF RXWSXW RI 673 GHFUHDVHG E\ DSSUR[LPDWHO\  0:H RI ZKLFK &36 (QHUJ\ V VKDUH LV DSSUR[LPDWHO\0:HSHUKRXU DQGWKHJHQHUDWRUHOHFWULFRXWSXWRI673GHFUHDVHGE\DSSUR[LPDWHO\0:H RIZKLFK&36 (QHUJ\ VVKDUHLVDSSUR[LPDWHO\0:HSHUKRXU FRUUHVSRQGLQJWRDQRYHUDOOGHFUHDVHDWWKHVWDWLRQOHYHORIDSSUR[LPDWHO\ 0:HSHUKRXUFRPSDUHGWRQHWHOHFWULFRXWSXWSULRUWRWKHXQLWVEHLQJGHUDWHGWRUHDFWRUSRZHU 67312& VLQYHVWLJDWLRQ LQWRWKLVPDWWHULGHQWLILHGWKDWERWKXQLWVKDGEHHQLQDVOLJKWRYHUSRZHUFRQGLWLRQ,QLWLDOO\WKH673RYHUSRZHUFRQGLWLRQZDV GHWHUPLQHGWREHDUHSRUWDEOHHYHQWWRWKH15&+RZHYHULQ-XQHIXUWKHUDQDO\VLVGHWHUPLQHGWKDWWKHFRQGLWLRQZDVQRW UHSRUWDEOHDQGWKHUHSRUWZDVUHWUDFWHG67312&LGHQWLILHGDUHSDLURSWLRQ UHSODFHPHQWRIWKH87)V\VWHPVLQERWK8QLWVZLWKD V\VWHPPRUHFRPPRQO\XVHGLQWKHQXFOHDULQGXVWU\ DQGVXEPLWWHGD/LFHQVH$PHQGPHQW5HTXHVW /$5 WRUHSODFHWKHH[LVWLQJ 87)ZKLFKZDVDSSURYHGE\WKH15&LQ0DUFK,WLVDQWLFLSDWHGWKDWZKHQLQVWDOOHGLQERWK8QLWVWKHQHZIHHGZDWHUIORZ PHDVXUHPHQWV\VWHPZLOOUHVWRUHWKHDSSUR[LPDWH0:HSHUKRXUDWWKHVWDWLRQOHYHO DSSUR[LPDWHO\0:HSHUKRXURIZKLFK LV&36(QHUJ\ VVKDUH E\ODWHFDOHQGDU\HDU7KH87)V\VWHPDQGYHQWXULIORZV\VWHP ZHUHUHSODFHGZLWKWKHQHZIHHG ZDWHUIORZPHDVXUHPHQWV\VWHPLQ673GXULQJWKHIDOOFDOHQGDU\HDUUHIXHOLQJRXWDJH)ROORZLQJWKHRXWDJHHOHFWULFRXWSXW LQ673OLNH673LVORZHUWKDQH[SHFWHG67312&ZRUNHGZLWKDQLQGHSHQGHQWFRQVXOWDQWDQGWKHYHQGRUWRDQDO\]HDQGYDOLGDWH WKHHOHFWULFRXWSXW67312&KDVPDGHVHYHUDOPLQRUDGMXVWPHQWVKRZHYHUWKHVHFKDQJHVKDYHQRWDQGDUHQRWH[SHFWHGWRUHVWRUH WKHORVWJHQHUDWLRQLQ673RU673  ,QODWH$XJXVW673ZDVGHUDWHGWRGXHWRDIDLOHGH[WUDFWLRQVWHDPH[SDQVLRQMRLQW2Q2FWREHU673ZDV WDNHQRIIOLQHWRUHSDLUWKHLVVXH673ZDVUHWXUQHGWRVHUYLFHRQ2FWREHUDQGDFKLHYHGSRZHURQ2FWREHU  2Q0D\673ZDVWDNHQRIIOLQHWRDGGUHVVPDWHULDOFRQGLWLRQVDLPHGDWPD[LPL]LQJUHOLDELOLW\GXULQJWKHXSFRPLQJ VXPPHUVHDVRQ7KHPRVWVLJQLILFDQWZRUNVFRSHDGGUHVVHGWKHPDLQJHQHUDWRUDVZHOODVDVLQJOHSRLQWYXOQHUDELOLW\ZLWKLQWKH URGFRQWUROV\VWHPWKDWKDGSUHYLRXVO\LPSDFWHG673673ZDVUHWXUQHGWRVHUYLFHRQ0D\DQGDFKLHYHGSRZHU RQWKHDIWHUQRRQRI0D\ 

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ò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

JHQHUDWRU URWRU  6HYHUDO RWKHU JHQHUDWRU FRPSRQHQWV UHTXLUHG UHSDLURUUHIXUELVKPHQW  673 ZDV UHWXUQHG WR SRZHU RQ $SULO  6HHWKH6$1$1721,21(/(&75,&$1'*$66<67(06–'(6&5,37,212))$&,/,7,(6–(OHFWULF6\VWHP–1XFOHDU VHFWLRQIRUDGGLWLRQDOLQIRUPDWLRQRQWKH6RXWK7H[DV3URMHFW  6HH6$1 $1721,2(/(&75,&$1'*$66<67(06 –'(6&5,37,21 2))$&,/,7,(6 –(OHFWULF6\VWHP –*HQHUDWLQJ &DSDELOLW\WDEOHIRUPRUHGHWDLOVRQ&36(QHUJ\ VJHQHUDWLQJXQLWV  FUEL SUPPLY  &36(QHUJ\acquires and manages the fuel supply for its electric generating units and natural gas distribution system. CPS Energy’s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

$Q(QHUJ\3ULFH5LVN0DQDJHPHQW3ROLF\ZDVLPSOHPHQWHGLQWRUHGXFHWKHHIIHFWVRIHQHUJ\SULFHYRODWLOLW\FRQVLVWHQWZLWK WKHSROLF\$WWLPHVILQDQFLDOGHULYDWLYHLQVWUXPHQWVDUHXWLOL]HGWRKHGJHQDWXUDOJDVSULFHV6HH6$1$1721,2(/(&75,& $1'*$66<67(06 –5(7$,/ $1' :+2/(6$/((/(&75,& $1'1$785$/ *$66$/(6 –:KROHVDOH3RZHUDQG 6$1$1721,2(/(&75,&$1'*$66<67(06–),1$1&,$/0$1$*(0(172)7+(6<67(06 –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–'(6&5,37,212))$&,/,7,(6–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– '(6&5,37,21 2) )$&,/,7,(6 – (OHFWULF 6\VWHP – ([WHUQDO (YHQWV ,PSDFWLQJ 1XFOHDU 3RZHU *HQHUDWLRQ,QGXVWU\DQG673DQG673DQG&36(QHUJ\ V5HVSRQVH–8VHG1XFOHDU)XHO0DQDJHPHQWKHUHLQ  GAS SYSTEM 

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

&36(QHUJ\KDVFRPSOHWHGWKHUHTXLUHGEDVHOLQHDVVHVVPHQWVRIWKHJDVWUDQVPLVVLRQV\VWHPLQDFFRUGDQFHZLWK6WDWHDQGIHGHUDO WUDQVPLVVLRQ LQWHJULW\ UXOHV XVLQJ WKH PRVW UHFHQWO\ DYDLODEOH WHFKQRORJ\  )XUWKHUPRUH &36 (QHUJ\ PDLQWDLQV DQ RQJRLQJ UHDVVHVVPHQWSODQDQGPDLQWDLQVDPRUHFRQVHUYDWLYHOHDNVXUYH\DQGSDWUROVFKHGXOHLQWHUYDOWKDQLVUHTXLUHGE\UHJXODWLRQ   

+HDWK&RQVXOWDQWV–)DOVLILFDWLRQ3HUIRUPDQFHRI&DWKRGLF3URWHFWLRQ5HDGV  $&36(QHUJ\*DV'HOLYHU\HPSOR\HHQRWLILHG*DV'HOLYHU\0DQDJHPHQWRIDFRQFHUQUHJDUGLQJWKHDFFXUDF\RIZRUNSHUIRUPHG by one of CPS Energy’s Gas Delivery contractors, Heath Consultants. Heath Consultants performs, among other things, cathodic SURWHFWLRQUHDGV,WZDVVXVSHFWHGWKDWHPSOR\HHVRI+HDWK&RQVXOWDQWVIDOVLILHGFDWKRGLFSURWHFWLRQUHDGV:KHQDGYLVHGRIWKLV FRQFHUQ Heath Consultants performed internal field audits of their employees’ cathodic protection reads. Their audit revealed LQFRQVLVWHQFLHV WKDW VXSSRUWHG WKH DFFXVDWLRQ DQG UHVXOWHG LQ WKH WHUPLQDWLRQ RI WZR +HDWK &RQVXOWDQWV HPSOR\HHV  +HDWK Consultants is no longer performing cathodic protection work for CPS Energy, and CPS Energy’s Gas Delivery employees are SHUIRUPLQJWKH UHDGVXQWLOD QHZFRQWUDFWLVDZDUGHG$PLWLJDWLRQDQGIROORZXSSODQ ZDVFUHDWHGWRDGGUHVVWKHLVVXH7KH PLWLJDWLRQSODQLQFOXGHVKLULQJDVHSDUDWHFRQWUDFWRUWRSHUIRUPFDWKRGLFSURWHFWLRQUHDGVRQWKHHQWLUHJDVV\VWHPDWDQDFFHOHUDWHG VFKHGXOHWRHQVXUHWKHDFFXUDF\RIDOOFDWKRGLFSURWHFWLRQUHDGV7KHSODQLQFOXGHVFRPPXQLFDWLRQZLWKWKH55&7WRGLVFXVVWKHVH findings and CPS Energy’s mitigation plan. 

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be addressed in CPS Energy’s regulator replacement plan thaWLVSDUWRIWKH*DV'HOLYHU\5LVN0LWLJDWLRQ3ODQ 

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

5XOH5HODWLQJWR5HSODFHPHQWRI*DV'LVWULEXWLRQ)DFLOLWLHV 

2Q$XJXVW&36(QHUJ\LPSOHPHQWHGLWVSODQVLQFRPSOLDQFHZLWK55&75XOH†'LVWULEXWLRQ)DFLOLWLHV5HSODFHPHQW DVVHWIRUWKDW7$&&KDSWHU3LSHOLQH6DIHW\5HJXODWLRQVDQGWKH)HGHUDO'LVWULEXWLRQ,QWHJULW\0DQDJHPHQW3URJUDP ',03  UXOHV&36(QHUJ\KDVXWLOL]HGDULVNEDVHGDSSURDFKWRIDFLOLW\UHSODFHPHQWIRUDQXPEHURI\HDUVDQGLWKDVEHHQVXFFHVVIXOLQ VLJQLILFDQWO\UHGXFLQJV\VWHPOHDNUDWHVDQGPDLQVDQGVHUYLFHVDVZHOODVORVWDQGXQDFFRXQWHGIRUJDV7KHVHSODQVZLOOFRQWLQXH WRVWUHQJWKHQ&36(QHUJ\ VUHQHZDOSURFHVVHVDQGVXSSRUWWKHFRQWLQXHGVDIHRSHUDWLRQRIWKH*DV6\VWHP        >7+(5(0$,1'(52)7+,63$*(,17(17,21$//</()7%/[email protected]        



27+(5(/(&75,&$1'*$66<67(0667$7,67,&6(  

  (OHFWULF6\VWHP   *DV6\VWHP    2YHUKHDG 8QGHUJURXQG'LVWU 7UDQVPLVVLRQ 'LVWULEXWLRQ 6\VWHP  *DV6XSSO\ 'LVWULEXWLRQ 6\VWHP 6\VWHP 1HWZRUN3LSH/LQH 6\VWHP  6XEVWDWLRQV   0LOHVRI/LQHV    0LOHVRI/LQHV       .LORYROWV  0LOHVRI0DLQ     0DLQ6L]HV LQFKHV     0DLQ3UHVVXUHV SVLJ  ––   BBBBBBBBBBBBBBBBBBBBBBB          

$VRI-DQXDU\ 0D[LPXPDOORZDEOHRSHUDWLQJSUHVVXUH ,QFOXGHVVZLWFK\DUGV 8QGHUJURXQGVLQJOHSKDVHLQFOXGHVPLOHVWKUHHSKDVHFRPPHUFLDOLQGXVWULDOOLQHV 'RZQWRZQ1HWZRUNWKUHHSKDVH

 

GENERAL PROPERTIES 

2SHUDWLRQ&RQWURO6\VWHP 

&36(QHUJ\ VHOHFWULFWUDQVPLVVLRQDQGGLVWULEXWLRQV\VWHPVVXEVWDWLRQVSRZHUSODQWVZLWFK\DUGVDQGPDMRUJDVUHJXODWLQJSRLQWV DUHFRQWLQXDOO\PRQLWRUHG$EQRUPDOLWLHVUHJLVWHUDQDODUPDQGV\VWHPRSHUDWRUVFDQFRQWUROFHUWDLQFLUFXLWEUHDNHUVDQGYDOYHVDV UHTXLUHG PDLQWDLQLQJ GHOLYHU\ RI JDV DQG HOHFWULF VHUYLFH  ,Q DGGLWLRQ WR FRQWURO FDSDELOLW\ WKH V\VWHP JDWKHUV GDWD WKDW LV HOHFWURQLFDOO\UHFRUGHGIRUYDULRXVUHSRUWLQJQHHGV  &36(QHUJ\ VRSHUDWLRQVDUHKLJKO\GHSHQGHQWRQDFRPSUHKHQVLYHLQIRUPDWLRQWHFKQRORJ\ ,7 LQIUDVWUXFWXUHWKDWLVVXSSRUWHG E\DWHDPRIWHFKQLFDOH[SHUWV7KH,7V\VWHPVDUHUHJXODUO\XSGDWHGDQGDUHPRQLWRUHGIRUYXOQHUDELOLWLHVLQRUGHUWREHVWHQVXUH VHFXULW\RI&36(QHUJ\DQGFXVWRPHULQIRUPDWLRQ&RQWLQXRXVPRQLWRULQJDQGULVNPLWLJDWLRQZLOOFRQWLQXHWREHQHFHVVDU\DV &36(QHUJ\LPSOHPHQWVFXVWRPHUIDFLQJSRUWDOVDQGLQFUHDVHVLWVGHSHQGHQF\RQWHFKQRORJ\DQGVRIWZDUH  &36(QHUJ\LVLGHQWLILHGDVDFUHGLWRUE\WKHVWDQGDUGVVHWIRUWKLQWKH)DLUDQG$FFXUDWH&UHGLW7UDQVDFWLRQV$FWRI )$&7 $FW 2QHRIWKHLQWHQGHGSXUSRVHVRIWKH)$&7$FWZDVWRSURWHFWFXVWRPHULQIRUPDWLRQ&36(QHUJ\LVFXUUHQWO\FRPSOLDQW ZLWKWKH)$&7$FWDQGKDVH[LVWLQJLQWHUQDOSROLFLHVSURFHGXUHVDQGWUDLQLQJVLQSODFHIRUFRQWLQXHGFRPSOLDQFH  &36(QHUJ\PDNHVDFRQFHUWHGHIIRUWWRPDLQWDLQLWVJHRJUDSKLFDOLQIRUPDWLRQPDSSLQJV\VWHP *,6 ZKLFKVXSSRUWVLWVJDV HOHFWULFWUDQVPLVVLRQDQGGLVWULEXWLRQV\VWHPDFWLYLWLHV7KLVV\VWHPLVXVHGWRPDLQWDLQLQIRUPDWLRQRQORFDWLRQVRI&36(QHUJ\ V LQIUDVWUXFWXUH  )URP WLPHWRWLPH ORFDWLRQ HUURUV DUH GHWHFWHG E\ LQGLYLGXDOV FRQWUDFWRUV RWKHU XWLOLWLHV DQG &36(QHUJ\ HPSOR\HHV   :KHQ VXFK SUREOHPV DUH GHWHFWHG WKH VSHFLILF LVVXH LV DGGUHVVHG SURPSWO\ LQFOXGLQJ FRUUHFWLQJ WKH SUREOHP HQFRXQWHUHGDQGXSGDWLQJRIWKHPDSSLQJLQIRUPDWLRQV\VWHP 

6XSSRUW)DFLOLWLHV  &RUHEXVLQHVVRSHUDWLRQVDUHVXSSRUWHGE\YDULRXVVXSSRUWIDFLOLWLHVXVHGIRUPDLQWHQDQFHRIVXFKLWHPVDVPHWHUVWUDQVIRUPHUV FRPPXQLFDWLRQHTXLSPHQWYHKLFOHVUDLOURDGFDUVDQGKHDY\FRQVWUXFWLRQHTXLSPHQW7KHVHPDLQWHQDQFHIDFLOLWLHVWRJHWKHUZLWK ZDUHKRXVHVDGPLQLVWUDWLYHRIILFHVFXVWRPHUVHUYLFHFHQWHUVDQGVWRUDJHDUHDVDUHVWUDWHJLFDOO\ORFDWHGWKURXJKRXWWKHVHUYLFHDUHD WR PLQLPL]H GULYLQJ WLPH WR ZRUN ORFDWLRQV  6HH 6$1 $1721,2 (/(&75,& $1' *$6 6<67(06 – ),1$1&,$/ 0$1$*(0(172)7+(6<67(06–'HEWDQG$VVHW0DQDJHPHQW3URJUDPIRUDEULHIGLVFXVVLRQFRQFHUQLQJ&36(QHUJ\ V UHFHQWVDOHRILWVFRPPXQLFDWLRQWRZHUVZKLFKZHUHVXSSRUWDVVHWVWKDWZHUHGLYHVWHGIRUWKHSXUSRVHRIUHGLUHFWLQJWKHFDSLWDO DVVRFLDWHGWKHUHZLWK 

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

&36(QHUJ\ VFXVWRPHUVHUYLFHFHQWHUVWDIISURYLGHVLQIRUPDWLRQFRQFHUQLQJFXVWRPHUDFFRXQWVDQGSURFHVVHVFXVWRPHUSD\PHQWV &XVWRPHUVHUYLFHFHQWHUVDQGDXWKRUL]HGSD\DJHQWVDUHORFDWHGJHRJUDSKLFDOO\LQDOOVHFWRUVRIWKHVHUYLFHDUHD7KHVHFHQWHUVDUH FRQYHQLHQW WR WKH FXVWRPHUV  KRPHV DQG LQ ORFDWLRQV UHDGLO\ DFFHVVLEOH WR IUHHZD\V DQG SXEOLF WUDQVSRUWDWLRQ  7KH 1RUWKVLGH &XVWRPHU6HUYLFH&HQWHUVHUYHVDVDZDONLQFHQWHUFXVWRPHUFDOOFHQWHUDQGDGGLWLRQDOJHQHUDORIILFHVSDFHIRUSHUVRQQHODWWKH SUHVHQWWLPH 

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

9LOOLWD$VVHPEO\%XLOGLQJ  7KH9LOOLWD$VVHPEO\%XLOGLQJLVORFDWHGLQGRZQWRZQ6DQ$QWRQLRDW9LOOLWD6WUHHWQHDUWKH&36(QHUJ\0DLQ2IILFH&RPSOH[ 7KH PDLQIORRURIWKHEXLOGLQJ KDVDFDSDFLW\WRDFFRPPRGDWHSHRSOHLQDQDXGLWRULXPW\SHVHDWLQJRUIRUDGLQQHU IXQFWLRQ7KHEXLOGLQJLVOHDVHGRXWWRLQGLYLGXDOVDQGWRFRUSRUDWHFLYLFFRPPXQLW\DQGQRQSURILWRUJDQL]DWLRQVIRUZHGGLQJV TXLQFHDxHUDVEDQTXHWVPHHWLQJVDQGVRFLDOHYHQWV9LOOLWD$VVHPEO\%XLOGLQJLVDOVRXVHGIRUODUJH&36(QHUJ\LQWHUQDOPHHWLQJV DQGHYHQWV 

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

5HDO(VWDWH+ROGLQJV  &36(QHUJ\RZQVYDULRXVSURSHUWLHVWKURXJKRXWWKHVHUYLFHWHUULWRU\DQGDFROOHFWLRQRIEXLOGLQJVWRWDOLQJPLOOLRQVTXDUHIHHW ZKLFKLQFOXGHVRIILFH EXLOGLQJVVHUYLFH FHQWHUV ZDUHKRXVHVGDWD FHQWHUVSDUNLQJ JDUDJHV YHKLFOH PDLQWHQDQFHIDFLOLWLHV WRRO VKRSVDQGDFRPPXQLW\FHQWHU&36(QHUJ\LVGLYHVWLQJLWVHOIRILWV-RQHV$YHQXH6HUYLFH&DPSXV2QHKDOIRIWKHSURSHUW\ZLOO EHFRQYH\HGWRWKHDGMDFHQW6DQ$QWRQLR0XVHXPRI$UWLQWKHSXEOLFLQWHUHVW7KHRWKHUKDOIRIWKHSURSHUW\ZLOOEHVROG YLD FRPSHWLWLYHRIIHULQJ  

&36(QHUJ\RZQVDSSUR[LPDWHO\HLJKW  DFUHVRIODQGDQGDQHZO\FRQVWUXFWHGVKHOOEXLOGLQJLQQRUWKZHVW6DQ$QWRQLR7KLV SURSHUW\KDVEHHQGHFODUHGVXUSOXVDQGLVEHLQJPDUNHWHGIRUVDOH 

,%0$XGLW1RWLFH  ,%0ZKRSURYLGHV6\VWHPVRSHUDWLRQDOVRIWZDUHWR&36(QHUJ\E\OLFHQVHHQJDJHG.30*WRFRQGXFWDQDXGLWWRFRQILUP WKH QXPEHURIVRIWZDUHOLFHQVHVEHLQJXVHGE\&36(QHUJ\YHUVXVWKHQXPEHURIVRIWZDUHOLFHQVHVIRUZKLFKLWKDVSDLG5HVXOWVRI WKH DXGLW UHTXLUH &36 (QHUJ\ WR PDNH DQ DGGLWLRQDO SD\PHQW IRU VRIWZDUH OLFHQVHV  3D\PHQW ZLOO EH PDGH SULRU WR 'HFHPEHUDQGZLOOQRWKDYHDPDWHULDOILQDQFLDOLPSDFWRQWKH6\VWHPVRULWVRSHUDWLRQV 

COMPLIANCE AND REGULATION 

ENVIRONMENTAL MATTERS

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he emission reductions expected from the EPA’s Mercury and Air Toxics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the ozone’s effects on public health and welfare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bbott’s recommendations of area designations within the State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area’s compliance with the ozone standard. As of 2FWREHUWKH6DQ$QWRQLRVLWHVKDGWKHIROORZLQJWKUHH\HDUDYHUDJHV &DPS%XOOLV–SSE&DODYHUDV/DNH–SSEDQG6DQ$QWRQLR1RUWKZHVW–SSE 

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†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

DQGVXEVHTXHQWFRPSOLDQFH7KH&6$35UHPDLQHGYDOLG,QUHVSRQVHWRWKLVFRXUWGHFLVLRQRQ1RYHPEHU WKH(3$ LVVXHGDSUHVVUHOHDVHUHJDUGLQJSURSRVHGXSGDWHVWR&6$35 ZKLFK ZRXOGUHGXFHVXPPHUWLPHHPLVVLRQVRI 12 [ IURPSRZHU SODQWVWKDWFRQWULEXWHWRGRZQZLQGR]RQHSUREOHPV6SHFLILFDOO\WKHSURSRVHGXSGDWHVLGHQWLI\FXWVLQSRZHUSODQW12[HPLVVLRQV LQVWDWHVLQWKHHDVWHUQKDOIRIWKHFRXQWU\WKDWFRQWULEXWHVLJQLILFDQWO\WRGRZQZLQGR]RQHDLUTXDOLW\SUREOHPV7KH(3$KHOG DSXEOLFKHDULQJRQWKLVPDWWHURQ'HFHPEHUDQGUHFHLYHGSXEOLFFRPPHQWVXQWLO)HEUXDU\ 7KH(3$EHOLHYHV WKHSURSRVHGFXWVLQ12[HPLVVLRQVZRXOGOHDGWRVLJQLILFDQWLPSURYHPHQWVLQDLUTXDOLW\IRUWKHR]RQHVHDVRQ7KH(3$LV DOVRSURSRVLQJWRDGRSW),3VIRUHDFKRIWKHVWDWHVLQWKHHYHQWWKDWDVWDWHGRHVQRWVXEPLWDQDSSURYDEOH6,37KLVSURSRVDO GRHVQRWDGGUHVVWKHUHPDQGRIWKHVH&6$35SKDVHWZR62DQQXDOHPLVVLRQVEXGJHWV7KH(3$LQWHQGVWRDGGUHVVWKHUHPDQGRI WKHSKDVH62DQQXDOHPLVVLRQVEXGJHWVVHSDUDWHO\  ,QLWVRSLQLRQWKH&RXUWGHWHUPLQHGLWXQQHFHVVDU\IRUVWDWHVWREHJLYHQWKHRSSRUWXQLW\WRVXEPLWDQDGGLWLRQDO6,3DIWHUWKH (3$LVVXHGOLPLWDWLRQVWRVWDWHV WR[LFHPLVVLRQV7KHVWDWXWH86&†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†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—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

)HGHUDO&OHDQ:DWHU$FW  7KH1DWLRQDO3ROOXWDQW'LVFKDUJH(OLPLQDWLRQ6\VWHP 13'(6 SURJUDPLVDGPLQLVWHUHGE\WKH(3$XQGHUWKHIHGHUDO&OHDQ :DWHU$FW7KH 13'(6SURJUDPSURYLGHVWKH IUDPHZRUNIRUPRQLWRULQJDQGUHJXODWLQJWKH GLVFKDUJH RISROOXWDQWV WRVXUIDFH ZDWHUVRIWKH8QLWHG6WDWHV,QWKH(3$GHOHJDWHG13'(6DXWKRULW\WRWKH6WDWHWKURXJKWKH7&(4DQGWKH55&7:LWKWKH 

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–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

OLWLJDWLRQ UHJDUGLQJXVHRIWKHDTXLIHU7KHFRVWRIWKHSURJUDPLVPLOOLRQLQVWDUW–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

&36(QHUJ\VXEPLWWHGDUHVSRQVHWRWKH(3$ V5HTXHVWIRU,QIRUPDWLRQ3XUVXDQWWR6HFWLRQRI&(5&/$DQG6HFWLRQRI 5&5$IRUWKH:DUG7UDQVIRUPHU6XSHUIXQG6LWH7KHUHZDVOLWWOHRUQRDFWLYLW\LQWKLVPDWWHUXQWLO$XJXVWZKHQ&36 (QHUJ\UHFHLYHGDOHWWHULQTXLULQJDERXW&36(QHUJ\ VGHVLUHWRQHJRWLDWHDJOREDOVHWWOHPHQWRIDOOFODLPV&36(QHUJ\UHVSRQGHG WKDWLWZRXOGSDUWLFLSDWH6HWWOHPHQWGLVFXVVLRQVDUHRQJRLQJ  2Q $XJXVW   &36 (QHUJ\ HQWHUHG LQWR WKH 3RWHQWLDOO\ 5HVSRQVLEOH 3DUW\ 353  VHWWOHPHQW DJUHHPHQW ZLWK WKH :DUG 7UDQVIRUPHU6LWH&LYLO$FWLRQ1RFY&DUROLQD3RZHU /LJKWGED3URJUHVV(QHUJ\&DUROLQDV,QFYV$LU3URGXFWV  &KHPLFDOV,QFHWDOLQWKH8QLWHG6WDWHV'LVWULFW&RXUW(DVWHUQ'LVWULFWRI1RUWK&DUROLQD &RQVHQW'HFUHH )LQDOVHWWOHPHQW SD\PHQWLQWKHDPRXQWRIZDVPDGHWRWKH:DUG6XSHUIXQG287UXVW)XQG7KHSDUWLHVH[HFXWHGDQGILOHGWKH&RQVHQW 'HFUHHZLWKWKHFRXUWDQGDUHZDLWLQJIRUWKHFRXUWWRHQWHUWKHGHFUHH  &KHPHWFR 6XSHUIXQG 6LWH  &36(QHUJ\ UHFHLYHG D -DQXDU\   6SHFLDO 1RWLFH /HWWHU 61/  IURP WKH (3$ QDPLQJ &36(QHUJ\DV RQHRI353VIRUWKH&KHPHWFR6XSHUIXQG6LWH &KHPHWFR LQ&KRXWHDX7RZQVKLS,OOLQRLV7KH(3$LV GLUHFWLQJUHPHGLDWLRQHIIRUWVXQGHUWKH&(5&/$WRDGGUHVVPHWDOVFRQWDPLQDWLRQDWWKHVLWHZKLFKRSHUDWHGDVDVHFRQGDU\FRSSHU VPHOWHUWKDWSURGXFHGFRSSHUFDWKRGHVDQGDQRGHV&RSSHUZLUHDQGOHDGFRYHUHGFDEOHWKDW&36(QHUJ\VROGLQDQG RQDPDWHULDOELGZHUHXOWLPDWHO\VHQWWRWKH&KHPHWFRVLWH%DVHGRQDYDLODEOHLQIRUPDWLRQ&36(QHUJ\EHOLHYHVLWVKRXOGEH WUHDWHGDVDGHPLQLPLVFRQWULEXWRUWRWKHVLWH  2Q0DUFK&36(QHUJ\MRLQHGWKH353JURXS7KH353JURXSFRQGXFWHGD5HPHGLDO,QYHVWLJDWLRQDQG)HDVLELOLW\6WXG\ 5,)6 RIWKHRIIVLWHSURSHUW\2Q)HEUXDU\SDUWLHVVLJQHGWKH5,)66WXG\2UGHUDQG6WDWHPHQWRI:RUNGHWDLOLQJ DFWLRQVPRYLQJIRUZDUG7KHFRVWRIWKH5,)6LVH[SHFWHGWREHDSSUR[LPDWHO\&36(QHUJ\SDLGIRULWVVKDUH RIWKH5,)6ZRUN7KHWRWDOFRVWRIWKHQHFHVVDU\UHPHGLDWLRQDQG&36(QHUJ\ VOLDELOLW\LVXQNQRZQ  &RPSOLDQFH2Q0D\&36(QHUJ\UHFHLYHGD1RWLFHRI(QIRUFHPHQW 12( ZLWKDSHQDOW\RIIURPWKH7&(4 IRUDPRQWKUROOLQJWRWDO62H[FHHGDQFHRIWRQVRIWKHWRQV\UOLPLWIRUWKH&DODYHUDV3RZHU6WDWLRQ3$/SHUPLW WKDWRFFXUUHGLQ2FWREHU,PPHGLDWHFRUUHFWLYHDFWLRQVZHUHWDNHQDWWKDWWLPH'HHO\ZDVVKXWGRZQ'HHO\UDQDWKDOI FDSDFLW\ DQG 6SUXFH VFUXEELQJ ZDV LQFUHDVHG  3HUPLW FRPSOLDQFH ZDV UHDWWDLQHG LQ 1RYHPEHU   $ URRW FDXVH DQDO\VLV GHWHUPLQHG WKDW VHYHUDO IDFWRUV FRPELQHG FDXVHG WKH LQFUHDVH LQFOXGLQJ DQ XSZDUG WUHQG LQ FRDO VXOIXU FRQWHQW DQG LQFUHDVHG JHQHUDWLRQDWWKH&DODYHUDV3RZHU6WDWLRQ&36(QHUJ\VXEPLWWHGGDWDWRWKH7&(4WRVKRZWKDWDOO1HZ6RXUFH5HYLHZ 165  KHDOWKEDVHGSHUPLWOLPLWVZHUHPHWDWDOOWLPHV&36(QHUJ\UHFHLYHGDVHWWOHPHQWOHWWHUDQG$JUHHG2UGHULQODWH'HFHPEHU SURSRVLQJWKDW&36(QHUJ\DJUHHWRDVXSSOHPHQWDOHQYLURQPHQWDOSURMHFW 6(3 LQWKHDPRXQWRI7KH$JUHHG2UGHU ZDVVLJQHGDQGSD\PHQWZDVPDGHLQ-XQH  2Q2FW&36(QHUJ\QRWLILHGWKH7&(4RILWVSODQVWRFRQGXFWDQ(QYLURQPHQWDO+HDOWKDQG6DIHW\FRPSOLDQFHDXGLW XQGHUWKH7H[DV$XGLW3ULYLOHJH$FWDWWKH&DODYHUDV%UDXQLJ/HRQ&UHHNDQG5LR1RJDOHV3RZHU6WDWLRQV7KHDXGLWFRPPHQFHG RQ2FWREHU7KHVFRpe of the audit is a review of the sites’ compliance with state and federal water quality and waste UHTXLUHPHQWVLQFOXGLQJEXWQRWOLPLWHGWRVDPSOLQJDQGDQDO\VLVSURFHVVHVDQGSURFHGXUHVDSSOLFDEOHPRQLWRULQJDQGUHSRUWLQJ UHTXLUHPHQWV$Q\LVVXHVGLVFORVHGWRWKH7&(4DUHSURWHFWHGIURPHQIRUFHPHQWDVORQJDV&36(QHUJ\FRUUHFWVWKHPLQDWLPHO\ PDQQHUDVUHTXLUHGE\WKH7H[DV$XGLW3ULYLOHJH$FW&36(QHUJ\KDVFRPSOHWHGPDQ\RIWKHDFWLRQLWHPVLGHQWLILHGLVLQWKH SURFHVVRIFRPSOHWLQJRWKHUFRUUHFWLYHDFWLRQVDQGLVDGYLVLQJWKH7&(4RQWKHSURJUHVVDVUHTXLUHG



ENERGY CONSERVATION AND PUBLIC SAFETY PROGRAMS 

(QHUJ\&RQVHUYDWLRQ  &36(QHUJ\SURJUDPVDQGDFWLYLWLHVWRDVVLVWFXVWRPHUVLQXQGHUVWDQGLQJHQHUJ\DQGZD\VWRUHGXFHHOHFWULFDQGJDVXVDJHLQFOXGH  x FRPSUHKHQVLYH VXLWH RI HQHUJ\ HIILFLHQF\ SURJUDPV RIIHULQJ UHEDWHV DQG LQFHQWLYHV IRU UHVLGHQWLDO FRPPHUFLDO DQG LQGXVWULDOFXVWRPHUV x PDLQWDLQLQJ D ZHE VLWH 0DQDJH 0\ $FFRXQW DW KWWSVZZZFSVHQHUJ\FRPHQFXVWRPHUVXSSRUWPDQDJHP\ DFFRXQWKWPO8VLQJDQ,QWHUQHWFRQQHFWLRQWRORJLQ&36(QHUJ\FXVWRPHUVFDQDFFHVVWKHDOOQHZ0\(QHUJ\3RUWDO YLHZWKHLUFXUUHQWELOOYLHZFXUUHQWEDODQFHGXHYLHZSDVWELOOVSD\E\FKHFNRUFUHGLWFDUGVWDUWVWRSWUDQVIHUVHUYLFH PDNHDSD\PHQWSODQYLHZHQHUJ\XVDJHXSGDWHPDLOLQJDGGUHVVXSGDWHSKRQHQXPEHUDXWKRUL]HFRQWDFWVVHWXSDOHUW SUHIHUHQFHVPDQDJHWKHLUSURILOH x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

x x x x x x x

PDLQWDLQLQJDSKRQHQXPEHUZKHUHFXVWRPHUVFDQREWDLQFRQVHUYDWLRQDQGRWKHUHQHUJ\UHODWHGLQIRUPDWLRQ PDLQWDLQLQJDVSHFLDO+RPH0DQDJHUFRQFLHUJHZKHUHWKHFXVWRPHUVFDQJHWLQIRUPDWLRQRQLWV+RPH0DQDJHUV\VWHP DQGSHUVRQDOL]HGVHWXSWURXEOHVKRRWLQJDVVLVWDQFH SURYLGLQJDIUHHFRPSUHKHQVLYHZHDWKHUL]DWLRQSURJUDPIRUORZLQFRPHFXVWRPHUVDWRUEHORZRIWKHIHGHUDOSRYHUW\ OHYHO SURYLGLQJFRPPHUFLDODQGUHVLGHQWLDOORDGFXUWDLOPHQWSURJUDPV VFKHGXOLQJFRQVXPHULQIRUPDWLRQH[KLELWVDWKLJKWUDIILFORFDWLRQVVXFKDVFXVWRPHUFDUHIDLUVVSHFLDOHYHQWVDQGWUDGH VKRZV FRQGXFWLQJXWLOLW\UHODWHGSUHVHQWDWLRQVIRUVFKRROVFRPPXQLW\VHUYLFHRUJDQL]DWLRQVEXVLQHVVDQGSURIHVVLRQDOJURXSV DQGKRPHRZQHUDVVRFLDWLRQVDQG PDNLQJDYDLODEOHDUHVLGHQWLDOKRPHHQHUJ\DVVHVVPHQWDWKWWSVUHVLGHQWLDOVDYHQRZFSVHQHUJ\FRPDVVHVVPHQW 

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

&36(QHUJ\KDVSODQVWRHYDOXDWHDQGPRGLI\SURJUDPRIIHULQJVDQQXDOO\WRWDUJHWWKHPRVWHIIHFWLYHPHWKRGVIRUHQHUJ\UHGXFWLRQ 7RIDFLOLWDWHSURJUDPGHYHORSPHQW&36(QHUJ\KDVKLUHGDOHDGLQJFRQVXOWLQJILUP,WLVHVWLPDWHGWKDWWKHSURJUDPVZLOOFRVW DSSUR[LPDWHO\  PLOOLRQ WKURXJK  DQG &36(QHUJ\ ZRUNHG ZLWK WKH &LW\ WR HVWDEOLVK D IDLU DQG HTXLWDEOH IXQGLQJ PHFKDQLVPWRVXSSRUWWKHVHJRDOV 6HH6$1$1721,2(/(&75,&$1'*$66<67(06–&86720(56$1'5$7(6– &XVWRPHU5DWHV–)XHODQG*DV&RVW$GMXVWPHQWKHUHLQ  

2Q-XQH&36(QHUJ\FRPPLWWHGWRSDUWQHUZLWKWKH7H[DV6XVWDLQDEOH(QHUJ\5HVHDUFK,QVWLWXWHDWWKH8QLYHUVLW\RI7H[DV DW6DQ$QWRQLRIRUVXVWDLQDEOHHQHUJ\UHVHDUFK&36(QHUJ\DJUHHGWRLQYHVWXSWRPLOOLRQRYHU\HDUVLQWKH,QVWLWXWH)URP LWVLQFHSWLRQLQ6HSWHPEHUWKURXJK-DQXDU\&36(QHUJ\KDVLQYHVWHGPLOOLRQLQWKH,QVWLWXWH)XWXUHIXQGLQJZLOO EHGHWHUPLQHGE\WKHVFRSHRIWKHSURMHFWVGHILQHGE\WKHSDUWQHUVKLSDQGZLOOEHVXEMHFWWRDQQXDODSSURYDOE\WKH%RDUG 

3XEOLF6DIHW\3URJUDPV 

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
7KH&LW\RI6DQ$QWRQLR  7KLVVHFWLRQGHVFULEHVWKHOLWLJDWLRQLQYROYLQJWKH&LW\WKDWGRHVQRWGLUHFWO\LQYROYH&36(QHUJ\RUFODLPVSD\DEOHRXWRI6\VWHPV  UHYHQXHV7KLVVHFWLRQGHVFULEHVOLWLJDWLRQZKLFKKDVEHHQGHWHUPLQHGE\WKH&LW\$WWRUQH\ VRIILFHDVEHLQJPDWHULDO WKDW WKH ILQDQFLDOUHVXOWVRIDGHFLVLRQDGYHUVHWRWKH&LW\FRXOGKDYHDQHJDWLYHUHVXOWRQWKH&LW\ VILQDQFLDOSRVLWLRQ 3OHDVHVHH6$1 $1721,2(/(&75,&$1'*$66<67(06–&203/,$1&($1'5(*8/$7,21–/LWLJDWLRQDQG5HJXODWRU\&RPSOLDQFH –6\VWHPV/LWLJDWLRQDQG&ODLPVKHUHLQIRUDGHVFULSWLRQRIOLWLJDWLRQLQYROYLQJ&36(QHUJ\ 

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†DOOHJLQJH[FHVVLYHXVH RIIRUFH7KH\VHHNGDPDJHVIRU0U$EHUQDWK\ VSDLQDQGVXIIHULQJDVZHOODVGDPDJHVIRUKLVGHDWK3ODLQWLIIVVHHNGDPDJHVRI DWOHDVWPLOOLRQ7KH&LW\ZDVGLVPLVVHGIURPWKLVFDVHRQ0D\6XPPDU\MXGJPHQWZDVHQWHUHGLQIDYRURIWKHRIILFHUV RQ$SULO%ULHILQJKDVEHHQFRPSOHWHGDQGWKH&LW\LVDZDLWLQJVXEPLVVLRQ  &KHU\O-RQHVHWDOY&LW\RI6DQ$QWRQLRHWDO2Q)HEUXDU\0DUTXLVH-RQHVZDVVKRWE\D6DQ$QWRQLRSROLFHRIILFHUDW &KDFKR V5HVWDXUDQW3ODLQWLIIVDUHDVVHUWLQJFODLPVXQGHU86&†DJDLQVWWKH&LW\DQGWKHSROLFHRIILFHUIRUH[FHVVLYHIRUFH UDFLDOSURILOLQJDQGIDLOXUHWRWUDLQDQGXQGHUWKH7H[DV6XUYLYDO6WDWXWHDQG7H[DV:URQJIXO'HDWK6WDWXWHIRUDVVDXOWDQGEDWWHU\ LQWHQWLRQDOLQIOLFWLRQRIHPRWLRQDOGLVWUHVVDQGJURVVQHJOLJHQFH3ODLQWLIIVVHHNGDPDJHVRIDWOHDVWPLOOLRQIRUORVVRIDIIHFWLRQ FRQVRUWLXPILQDQFLDODVVLVWDQFHSDLQDQGVXIIHULQJRIGHFHGHQWSULRUWRGHDWKPHQWDODQJXLVKHPRWLRQDOGLVWUHVVTXDOLW\ RIOLIH H[HPSODU\DQGSXQLWLYHGDPDJHVDWWRUQH\ VIHHVDQGFRVWVRIFRXUW1RWULDOGDWHKDVEHHQVHW  

-LPP\0DVSHURDQG5HJLQD0DVSHURHWDOY&LW\RI6DQ$QWRQLRHWDO3ODLQWLIIVDOOHJHWKDWRQ6HSWHPEHU3ODLQWLIIV  YHKLFOHZDVLQYROYHGLQDFROOLVLRQZLWKDYHKLFOHEHLQJSXUVXHGE\D6DQ$QWRQLR3ROLFH'HSDUWPHQW 6$3' SDWUROFDUFDXVLQJ WKHGHDWKRIWZRRI3ODLQWLIIV FKLOGUHQDQGVHYHUHSHUPDQHQWLQMXULHVWRWKHUHPDLQLQJ3ODLQWLIIV WZRFKLOGUHQWZRDGXOWV 7KH 3ODLQWLIIVKDYHDVVHUWHGDVWDWHFUHDWHGGDQJHUWKHRU\XQGHU86&†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†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† 'LVFRYHU\LV RQJRLQJDQGWKLVPDWWHULVQRW\HWVHWIRUWULDO'DPDJHVFRXOGEHLQH[FHVVRI  'DYLG%ULDQ5LFNVY&LW\RI6DQ$QWRQLRHWDO3ODLQWLIIZDVDUUHVWHGIRUSXEOLFLQWR[LFDWLRQ+HDOOHJHVWKDW6$3'2IILFHUVXVHG H[FHVVLYHIRUFHGXULQJKLVDUUHVWFDXVLQJVHYHUHERGLO\LQMXULHV3ODLQWLIIVXHGSXUVXDQWWR86&†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violence. At the scene, decedent was tased on two separate occasions. Decedent later collapsed and died. Decedent’s estateDQG IDPLO\PHPEHUVKDYHILOHGVXLWDJDLQVWWKH&LW\DQGQDPHGRIILFHUVDOOHJLQJXVHRIH[FHVVLYHIRUFHLQYLRODWLRQRI86&† 3ODLQWLIIVVHHNGDPDJHVLQH[FHVVRI'LVFRYHU\LVRQJRLQJ1RWULDOGDWHKDVEHHQVHW  7KH(VWDWHRI+HFWRU$OIUHGR$UDJRQHWDOY&LW\RI6DQ$QWRQLRHWDOAragon’s former girlfriend requested and was driven KRPHE\DQXQGHUFRYHUSROLFHRIILFHU2QDUULYDO$UDJRQZDVVHHQZDLWLQJLQWKHSDUNLQJORWDQGRSHQHGILUHRQWKHSROLFHRIILFHU DQGKLVH[JLUOIULHQGVWULNLQJKHU7KHRIILFHUOHIWWKHVFHQHZLWKWKHJLUOIULHQGZLWK$UDJRQLQSXUVXLW7KHJLUOIULHQGFRQFHUQHG that her child with Aragon was at his house, asked the officer to continue to that location to assure the child’s safety. OnDUULYDO DWKLVUHVLGHQFH$UDJRQPRYHGDJJUHVVLYHO\WRZDUGVWKHRIILFHUZKRVKRWDQGNLOOHGKLP3ODLQWLIIVLQLWLDOO\VXHGERWKWKH&LW\ DQGWKHRIILFHUEXWRQO\VHUYHGWKH&LW\7KH&LW\KDVEHHQGLVPLVVHGIURPWKHVXLW7KHSODLQWLIIVKDYHQRZREWDLQHGVHUYLFHRQ 

WKHRIILFHU3ODLQWLIIVVHHNGDPDJHVLQH[FHVVRI7KLVFDVHLVQRWFXUUHQWO\VHWIRUWULDO$PRWLRQIRUVXPPDU\MXGJPHQW KDVEHHQILOHGRQEHKDOIRIWKHRIILFHU  'LDQH-DFNVRQY&LW\RI6DQ$QWRQLR3ODLQWLIIDOOHJHVWKDWVKHZDVUHDUHQGHGE\DQ6$3'SDWUROYHKLFOH6KHFODLPVSHUVRQDO LQMXULHVGXHWRQHFNPLGback and lower back pain, as well as property damage. While Plaintiff’s past medical expenses are low, VKHQRZFODLPVIXWXUHPHGLFDOGDPDJHVDSSURDFKLQJ7KLVFDVHLVVHWIRUWULDO'HFHPEHU  5RVD0DUWLQH]Y&LW\RI6DQ$QWRQLR3ODLQWLIIZDVVWRSSHGLQDQLQWHUVHFWLRQLQDQWLFLSDWLRQRIPDNLQJDOHIWKDQGWXUQZKHQVKH ZDVVWUXFNE\DQ6$3'SDWUROYHKLFOH'DPDJHVFRXOGUHDFK7KLVFDVHLVVHWIRUWULDORQ0DUFK  (OHQD6FRWW,QGLYLGXDOO\DQGDV5HSUHVHQWDWLYHRIWKH(VWDWHRI$QWURQLH6FRWWY&LW\RI6DQ$QWRQLRHWDO'LDQH3HSSDUHWDOY &LW\RI6DQ$QWRQLRHWDO$QSAPD officer was attempting to execute an arrest warrant when Plaintiff’s decedent exited his YHKLFOHZLWKDQREMHFWWKHRIILFHUEHOLHYHGZDVDZHDSRQ7KHRIILFHGLVFKDUJHGKLVVHUYLFHZHDSRQIDWDOO\ZRXQGLQJGHFHGHQW 3ODLQWLIIV KDYH ILOHG VXLW XQGHU  86& †  DOOHJLQJ XVH RI H[FHVVLYH IRUFH  7KHVH WZR PDWWHUV KDYH EHHQ FRQVROLGDWHG 'LVFRYHU\LVRQJRLQJDQGQRWULDOGDWHKDVEHHQVHW 

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that his mother and brother suffered mental anguish because of CPS Energy’s negligence. The suit did not sp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nergy meter or regulator. The claimants’ attorneys have not presented details of the claimants’ injuries or specific damages, however, they have generally stated that one claimant has medical expHQVHV LQH[FHVVRIDQGWKDWRQHRIWKHVPDOOFKLOGUHQZDVEXUQHGRYHURIKLVRUKHUERG\DQGDQRWKHUEXUQHGRYHURI KLVRUKHUERG\3ODLQWLIIVILOHGWKHLUODZVXLWRQ-XO\DQGGLVFRYHU\LVXQGHUZD\7KHUHLVQRPHGLDWLRQGDWHRUWULDOVHWWLQJ DWWKLVWLPH   BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB

2Q2FWREHUWKH38&7DSSURYHGWKHFRQVROLGDWLRQRI6WDWHIssued Certificates of Franchise Authority (“SICFA”) granted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ity of San Antonio as defendants and both are now active in the suit. Plaintiff’s request for a trial setting indicates damDJHVLQ H[FHVV RI   $Q DFFLGHQW UHFRQVWUXFWLRQLVW KLUHG E\ &36 (QHUJ\ EHOLHYHV WKDW &36 (QHUJ\ GLG QRW KDYH VXIILFLHQW LQIRUPDWLRQWRUHVSRQGWRWKHGRZQHGSROHEHIRUHWKHSODLQWLIIFROOLGHGZLWKLW7KHSODLQWLIIKDVUHFHQWO\DPHQGHGKLVSHWLWLRQWR VXHWKH&LW\RI6DQ$QWRQLRLQFOXGLQJWKH6$3', and L.E. Myers, CPS Energy’s lighting maintenance contractor. DLVFRYHU\LV RQJRLQJ7KHUHLVQRWULDOVHWWLQJDWWKLVWLPH  5RGROIR &DVWLOOR -DVRQ 5H\HV HW DO Y &36 (QHUJ\  &36 (QHUJ\ ZDV VHUYHG ZLWK D ODZVXLW RQ 'HFHPEHU   E\ WKUHH LQGLYLGXDOV5RGROIR
1R/LWLJDWLRQ&HUWLILFDWH  2QWKHGDWHRIGHOLYHU\RIWKH%RQGVWKH&LW\ZLOOH[HFXWHDQGGHOLYHUWRWKH5HPDUNHWLQJ$JHQWDFHUWLILFDWHWRWKHHIIHFWWKDW H[FHSWDVGLVFORVHGKHUHLQQROLWLJDWLRQRIDQ\QDWXUHKDVEHHQILOHGRULVSHQGLQJDVRIWKDWGDWHWRUHVWUDLQRUHQMRLQWKHLVVXDQFH RUGHOLYHU\RIWKH%RQGVRUZKLFKZRXOGDIIHFWWKHSURYLVLRQVPDGHIRUWKHLUSD\PHQWRUVHFXULW\RULQDQ\PDQQHUTXHVWLRQWKH YDOLGLW\RIWKH%RQGV 

5HJXODWRU\&RPSOLDQFH

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

&(57$,1)$&7256$))(&7,1*7+((/(&75,&87,/,7<,1'8675< 

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– 7+( (/(&75,&87,/,7<,1'8675<*(1(5$//<–(/(&75,&87,/,7<5(6758&785,1*,17(;$6KHUHLQ  6XFK IDFWRUV LQFOXGH DPRQJ RWKHUV L HIIHFWV RI FRPSOLDQFH ZLWK UDSLGO\ FKDQJLQJ F\EHU HQYLURQPHQWDO VDIHW\ OLFHQVLQJ UHJXODWRU\DQGOHJLVODWLYHUHTXLUHPHQWV LL FKDQJHVUHVXOWLQJIURPFRQVHUYDWLRQDQGGHPDQGVLGHPDQDJHPHQWSURJUDPVRQWKH WLPLQJDQGXVHRIHOHFWULFHQHUJ\ LLL FKDQJHVWKDWPLJKWUHVXOWIURPDQDWLRQDOHQHUJ\SROLF\ LY LQFUHDVHGFRPSHWLWLRQIURP 

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–(QYLURQPHQWDO0DWWHUV–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x UHSHDORIH[LVWLQJ3XEOLF8WLOLW\+ROGLQJ&RPSDQ\$FWRIUHTXLUHPHQWV x FRQGLWLRQDO WHUPLQDWLRQ RI WKH PDQGDWRU\ IHGHUDO SXUFKDVH DQG VDOH UHTXLUHPHQWV IRU FRJHQHUDWLRQ DQG VPDOO SRZHU SURGXFWLRQ x H[SDQVLRQRI)(5& VPHUJHUUHYLHZDXWKRULW\ x UHDXWKRUL]DWLRQRIUHQHZDEOHHQHUJ\SURGXFWLRQLQFHQWLYHVIRUVRODUZLQGJHRWKHUPDODQGELRPDVVDQGDXWKRUL]DWLRQRI QHZLQFHQWLYHVIRUODQGILOOJDV x LQFHQWLYHVIRUGHYHORSPHQWRIQHZFRPPHUFLDOQXFOHDUSRZHUSODQWVDQGRWKHUQRQRUORZFDUERQHPLWWLQJWHFKQRORJLHV x HVWDEOLVKPHQWRIDJRDOIRULQFUHDVHGUHQHZDEOHHQHUJ\XVHE\WKHIHGHUDOJRYHUQPHQWE\DQGRIDUHTXLUHG UHGXFWLRQLQHQHUJ\XVHE\IHGHUDOEXLOGLQJVE\DQG x LQFUHDVHGIXQGLQJIRUZHDWKHUL]DWLRQRIORZLQFRPHKRPHVDQGVWDWHHQHUJ\HIILFLHQF\SURJUDPV  7KH(QHUJ\$FWDOVRLQFOXGHGSURYLVLRQVDIIHFWLQJH[LVWLQJQXFOHDUJHQHUDWLQJXQLWVLQFOXGLQJ  x H[WHQVLRQRIWKH3ULFH$QGHUVRQ$FWWRDQGLQFUHDVHVLQWKHUHWURVSHFWLYHSUHPLXPVIRUZKLFKOLFHQVHHVDUHOLDEOH IRUFODLPVUHVXOWLQJIURPDQXFOHDULQFLGHQW x H[SDQVLRQRIWKH15&DXWKRULW\WRUHJXODWHGHFRPPLVVLRQLQJWUXVWIXQGV SULPDULO\DIIHFWLQJIXQGVKHOGE\IRUPHUSODQW OLFHQVHHV  x GLUHFWLRQRIWKH'2(WRWDNHUHVSRQVLELOLW\IRUVDIHGLVSRVDORIKLJKOHYHOUDGLRDFWLYHZDVWH x SURFHGXUDOSURWHFWLRQVIRULQGLYLGXDOVILOLQJFODLPVXQGHUIHGHUDOZKLVWOHEORZHUSURYLVLRQV x HQKDQFHGSURYLVLRQVUHODWLQJWR15&RYHUVLJKWRIWKHVHFXULW\RIOLFHQVHGIDFLOLWLHVDQG x YDULRXVGHFRPPLVVLRQLQJWD[UHODWHGDGMXVWPHQWVEHQHILFLDOWRIHGHUDOWD[SD\LQJOLFHQVHHV  )XUWKHUPRUHWKH(QHUJ\$FWDPHQGHGWKH3XEOLF8WLOLW\5HJXODWRU\3ROLFLHV$FWRI 3853$ E\DGGLQJILYHQHZ VWDQGDUGVWKDW0XQLFLSDO8WLOLWLHVPXVWFRQVLGHUDQGGHWHUPLQHZKHWKHUWRLPSOHPHQW7KHVHQHZVWDQGDUGVDGGUHVVQHWPHWHULQJ GLYHUVLW\ RI IXHO VRXUFHV HIILFLHQF\ RI IRVVLOIXHOILUHG JHQHUDWLRQ WLPHEDVHG RU VPDUW PHWHULQJ DQG WKH LQWHUFRQQHFWLRQ RI 

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– 7+( (/(&75,& 87,/,7< ,1'8675< *(1(5$//< – )HGHUDO (QHUJ\ 3ROLF\ KHUHLQ  7KH (5&27 RSHQ DFFHVV V\VWHP LV DGPLQLVWHUHGE\DQ,62FRQGXFWLQJPDQ\RIWKHIXQFWLRQVWKDWZRXOGEHDGPLQLVWHUHGE\D5HJLRQDO7UDQVPLVVLRQ2UJDQL]DWLRQ 6HFWLRQRIWKH(QHUJ\$FWDPHQGHGWKH)HGHUDO3RZHU$FWWRLQFOXGHDQHZVHFWLRQGHVLJQDWHGDV6HFWLRQZKLFK GLUHFWHG)(5&WRFHUWLI\DQ(52DQGGHYHORSSURFHGXUHVIRUHVWDEOLVKLQJDSSURYLQJDQGHQIRUFLQJHOHFWULFUHOLDELOLW\VWDQGDUGV $VGLVFXVVHGKHUHLQXQGHU6$1$1721,2(/(&75,&$1'*$66<67(06–'(6&5,37,212))$&,/,7,(6–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

ERCOT 

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–&86720(56$1'5$7(6–&XVWRPHU5DWHV–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–5(7$,/$1':+2/(6$/((/(&75,&$1'*$66$/(6–5HWDLO6HUYLFH$UHDKHUHLQ  ENTITIES THAT HAVE OPTED-IN TO COMPETITION 

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

WKURXJKDQRQE\SDVVDEOHFRPSHWLWLYHWUDQVLWLRQFKDUJHFROOHFWHGIURPWKHHQGUHWDLOHOHFWULFXVHUVZLWKLQWKH,28 VVHUYLFHWHUULWRU\ DVLWH[LVWHGRQ0D\7KHFKDUJHLVFROOHFWHGSULPDULO\DVDQDGGLWLRQDOFRPSRQHQWWRWKHUDWH IRUWKH XVHRIWKHUHWDLO HOHFWULFGLVWULEXWLRQV\VWHPGHOLYHULQJHOHFWULFLW\WRVXFKHQGXVHU  ,28VPD\UHFRYHUDFHUWDLQSRUWLRQRIWKHLUUHVSHFWLYHVWUDQGHGFRVWVWKURXJKWKHLVVXDQFHRIERQGVZLWKDPDWXULW\QRWWRH[FHHG \HDUVZKHUHE\WKHSULQFLSDOLQWHUHVWDQGUHDVRQDEOHFRVWVRILVVXLQJVHUYLFLQJDQGUHILQDQFLQJVXFKERQGVLVVHFXUHGE\D TXDOLILHGUDWHRUGHURIWKH38&7WKDWFUHDWHVWKHFRPSHWLWLYHWUDQVLWLRQFKDUJH1HLWKHUWKH6WDWHQRUWKH38&7PD\DPHQGWKH TXDOLILHGUDWHRUGHULQDQ\PDQQHUWKDWZRXOGLPSDLUWKHULJKWVRIWKHVHFXULWL]HGERQGKROGHUV  ADDITIONAL IMPACTS OF SENATE BILL 7 DEREGULATION  0XQLFLSDO8WLOLWLHVDQG(OHFWULF&RRSVDUHODUJHO\H[HPSWIURPWKHUHTXLUHPHQWVRI6%WKDWDSSO\WR,28V:KLOH,28VEHFDPH VXEMHFWWRUHWDLOFRPSHWLWLRQEHJLQQLQJRQ-DQXDU\WKHJRYHUQLQJERGLHVRI0XQLFLSDO8WLOLWLHVDQG(OHFWULF&RRSVKDYH WKHVROHGLVFUHWLRQWRGHWHUPLQHZKHWKHUDQGZKHQWRRSWLQWRUHWDLOFRPSHWLWLRQ+RZHYHULID0XQLFLSDO8WLOLW\RU(OHFWULF&R RSKDVQRWYRWHGWRRSWLQLWZLOOQRWEHDEOHWRFRPSHWH IRUUHWDLOHQHUJ\FXVWRPHUVDWXQUHJXODWHGUDWHVRXWVLGHLWVWUDGLWLRQDO HOHFWULFVHUYLFHDUHDRUWHUULWRU\  6%SUHVHUYHVWKH38&7 VUHJXODWRU\DXWKRULW\RYHUHOHFWULFWUDQVPLVVLRQIDFLOLWLHVDQGRSHQDFFHVVWRVXFKWUDQVPLVVLRQIDFLOLWLHV 6% SURYLGHV IRU DQ LQGHSHQGHQW WUDQVPLVVLRQ V\VWHP RSHUDWRU DQ ,62 DV SUHYLRXVO\ GHILQHG  WKDW LV JRYHUQHG E\ D ERDUG FRPSULVHGRIPDUNHWSDUWLFLSDQWVDQGLQGHSHQGHQWPHPEHUVDQGLVUHVSRQVLEOHIRUGLUHFWLQJDQGFRQWUROOLQJWKHRSHUDWLRQRIWKH WUDQVPLVVLRQQHWZRUNZLWKLQ(5&277KH38&7KDVGHVLJQDWHG(5&27DVWKH,62IRUWKHSRUWLRQRI7H[DVZLWKLQWKH(5&27 DUHD  ,Q DGGLWLRQ 6% DV DPHQGHG E\ WKH 7H[DV /HJLVODWXUH DIWHU   GLUHFWV WKH 38&7 WR GHWHUPLQH HOHFWULF ZKROHVDOH WUDQVPLVVLRQRSHQDFFHVVUDWHVRQDSRVWDJHVWDPSSULFLQJPHWKRGRORJ\  7KHJUHDWHVWSRWHQWLDOLPSDFWRQ&36(QHUJ\ VHOHFWULFV\VWHPIURP6%FRXOGUHVXOWIURPDGHFLVLRQE\WKH%RDUGDQGWKH&LW\ &RXQFLOWRSDUWLFLSDWH LQDIXOO\FRPSHWLWLYH PDUNHWSDUWLFXODUO\LQOLJKWRIWKH IDFWWKDW&36(QHUJ\ LVDPRQJ WKHORZHVWFRVW SURGXFHUVRIHOHFWULFHQHUJ\LQ7H[DV2Q$SULOWKH&LW\&RXQFLOSDVVHGDUHVROXWLRQVWDWLQJWKDWWKH&LW\GLGQRWLQWHQG WRRSWLQWRWKHGHUHJXODWHGHOHFWULFPDUNHWEHJLQQLQJ-DQXDU\+RZHYHU&36(QHUJ\FXUUHQWO\EHOLHYHVWKDWLWLVWDNLQJ DOOVWHSVQHFHVVDU\WRSUHSDUHIRUSRVVLEOHFRPSHWLWLRQLQWKHXQUHJXODWHGHQHUJ\PDUNHWVKRXOGWKH%RDUGDQGWKH&LW\&RXQFLO PDNHDGHFLVLRQWRRSWLQRULIIXWXUHOHJLVODWLRQIRUFHV0XQLFLSDO8WLOLWLHVDQG(OHFWULF&RRSVLQWRUHWDLOFRPSHWLWLRQ  $Q\IXWXUHGHFLVLRQRIWKH%RDUGDQGWKH&LW\&RXQFLOWRSDUWLFLSDWHLQIXOOUHWDLOFRPSHWLWLRQZRXOGSHUPLW&36(QHUJ\WRRIIHU HOHFWULFHQHUJ\VHUYLFHWRFXVWRPHUVORFDWHGLQDUHDVSDUWLFLSDWLQJLQUHWDLOFKRLFHWKDWDUHQRWSUHVHQWO\ZLWKLQWKHFHUWLILFDWHGVHUYLFH DUHDRI&36(QHUJ\7KH%RDUGDQGWKH&LW\&RXQFLOFRXOGOLNHZLVHFKRRVHWRRSHQWKH&36(QHUJ\VHUYLFHDUHDWRFRPSHWLWLRQ IURPRWKHUVXSSOLHUVZKLOHFKRRVLQJQRWWRKDYH&36(QHUJ\FRPSHWHIRUUHWDLOFXVWRPHUVRXWVLGHLWVFHUWLILHGVHUYLFHDUHD  $VGLVFXVVHGDERYH0XQLFLSDO8WLOLWLHVDQG(OHFWULF&RRSVZLOODOVRGHWHUPLQHWKHUDWHVIRUXVHRIWKHLUGLVWULEXWLRQV\VWHPVDIWHU WKH\RSHQWKHLUWHUULWRULHVWRUHWDLOFRPSHWLWLRQDOWKRXJKWKH38&7KDVHVWDEOLVKHGE\UXOHWKHWHUPVDQGFRQGLWLRQVDSSOLFDEOHWR KDYHDFFHVVWRWKRVHV\VWHPV6%DOVRSHUPLWV0XQLFLSDO8WLOLWLHVDQG(OHFWULF&RRSVWRUHFRYHUWKHLUVWUDQGHGFRVWVWKURXJK FROOHFWLRQRIDQRQE\SDVVDEOHWUDQVLWLRQFKDUJHIURPWKHLUFXVWRPHUVLIVRGHWHUPLQHGE\VXFKHQWLWLHVWKURXJKSURFHGXUHVWKDW KDYHWKHHIIHFWRISURFHGXUHVDYDLODEOHWR,28VXQGHU6%8QOLNH,28VWKHJRYHUQLQJERG\RID0XQLFLSDO8WLOLW\GHWHUPLQHV WKHDPRXQWRIVWUDQGHGFRVWVWREHUHFRYHUHGSXUVXDQWWRUXOHVDQGSURFHGXUHVHVWDEOLVKHGE\VXFKJRYHUQLQJERG\0XQLFLSDO 8WLOLWLHVDQG(OHFWULF&RRSVDUHDOVRSHUPLWWHGWRUHFRYHUWKHLUUHVSHFWLYHVWUDQGHGFRVWVWKURXJKWKHLVVXDQFHRIERQGVLQDVLPLODU IDVKLRQWRWKH,28V$Q\GHFLVLRQE\&36(QHUJ\DVWRWKHPDJQLWXGHRILWVVWUDQGHGFRVWVLIDQ\ZRXOGEHPDGHLQFRQMXQFWLRQ ZLWKWKHGHFLVLRQDVWRZKHWKHURUQRWWRSDUWLFLSDWHLQUHWDLOFRPSHWLWLRQ 

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–'(6&5,37,212))$&,/,7,(6–(OHFWULF6\VWHP–)XHO6XSSO\–5(7$,/$1':+2/(6$/((/(&75,& $1' 1$785$/ *$6 6$/(6 – :+2/(6$/( 32:(5 DQG – ),1$1&,$/ 0$1$*(0(17 2) 7+( 6<67(06 – (17(535,6(5,6.0$1$*(0(17 62/87,216KHUHLQIRUGLVFXVVLRQRIWKH(QHUJ\3ULFH5LVN0DQDJHPHQW3URJUDPLQ XVHDW&36(QHUJ\  'XULQJLWVUG/HJLVODWLYH6HVVLRQLQWKH7H[DV/HJLVODWXUHUHYLHZHGDQGSDVVHGWKHPLVVLRQDQGSHUIRUPDQFHRIWKH38&7 DQG WKH 55&7 DV UHTXLUHG E\ WKH 7H[DV 6XQVHW $FW 7KLV DFW SURYLGHV WKDW WKH 6XQVHW $GYLVRU\ &RPPLVVLRQ FRPSRVHG RI OHJLVODWRUV DQG SXEOLF PHPEHUV SHULRGLFDOO\ HYDOXDWH D VWDWH DJHQF\ WR GHWHUPLQH LI WKH DJHQF\ LV VWLOO QHHGHG DQG ZKDW LPSURYHPHQWVDUHQHHGHGWRHQVXUHWKDWWD[GROODUVDUHDSSURSULDWHO\XWLOL]HG%DVHGRQUHFRPPHQGDWLRQVRIWKH6XQVHW$GYLVRU\ &RPPLVVLRQWKH7H[DV/HJLVODWXUHXOWLPDWHO\GHFLGHVZKHWKHUDQDJHQF\FRQWLQXHVWRRSHUDWHLQWRWKHIXWXUH  7KH6XQVHW$GYLVRU\&RPPLVVLRQUHYLHZHGWKH38&7DQGWKH55&7LQDQGPDGHUHFRPPHQGDWLRQVWRWKH UG/HJLVODWXUH RQWKHDJHQFLHVLQFOXGLQJWKHLUFRQWLQXDQFH7KHUG/HJLVODWXUHDSSURYHGWKH38&76XQVHWELOO +% FRQWLQXLQJWKH38&7 XQWLO  7KH ELOO LQFRUSRUDWLQJ WKH 55&7 IDLOHG WR SDVV (DFK VHVVLRQ WKHUH LV D 6XQVHW VDIHW\ QHW ELOO ZKLFK VLPSO\ UHDXWKRUL]HVDJHQFLHVZKRVHVWDQGDORQH6XQVHWELOOVDUHXQVXFFHVVIXODQGVHWVWKHGDWHIRUDQRWKHUUHYLHZRIWKHDJHQF\GXULQJD IXWXUH6XQVHWSURFHVV7KH55&7ZDVDGGHGWRWKHDSSURYHGVDIHW\QHWELOODQGLVQRZFXUUHQWO\XQGHUJRLQJUHYLHZGXULQJWKH 6XQVHWUHYLHZF\FOHLQSUHSDUDWLRQIRUWKH WK/HJLVODWXUHLQ&36(QHUJ\LVRQO\UHJXODWHGE\WKH55&7ZLWK UHJDUGVWRSLSHOLQHVDIHW\  7KHWK5HJXODU/HJLVODWLYH6HVVLRQHQGHG-XQH7KHPRVWQRWDEOHSLHFHRIOHJLVODWLRQWKDWSDVVHGLPSDFWLQJ&36(QHUJ\ LV6%UHTXLULQJD028WRREWDLQD&&1IURPWKH38&7IRUWKHFRQVWUXFWLRQRIDWUDQVPLVVLRQIDFLOLW\RXWVLGHWKHFHUWLILFDWHG DUHDRIDPXQLFLSDOLW\028VPXVWJHW38&DSSURYHG&&1 VRXWVLGHRIWKHLUVHUYLFHWHUULWRU\SOXVWHQPLOHVXQWLODQGRXWVLGH WKHLUFLW\OLPLWVWKHUHDIWHU028VFDQPDNHSD\PHQWVLQOLHXRIWD[HVRQH[WHUQDOWUDQVPLVVLRQ$028UHTXLUHGWRDSSO\IRUD &&1ZRXOGEHHQWLWOHGWRUHFRYHUSD\PHQWVLQOLHXRISURSHUW\WD[HVWKURXJKLWVZKROHVDOHWUDQVPLVVLRQIHHVLIWKHXWLOLW\KDGD ZULWWHQDJUHHPHQWZLWKWKHWD[LQJHQWLW\WKHSD\PHQWVLQOLHXRIWD[HVZHUHHTXLYDOHQWWRWKHWD[HVLWZRXOGKDYHSDLGLILWZHUHD SULYDWHHQWLW\WKHJRYHUQLQJERG\RIWKHWD[LQJHQWLW\ZDVQRWWKHVDPHDVWKHJRYHUQLQJERG\RIWKHXWLOLW\DQGWKHXWLOLW\SURYLGHG WKH38&7ZLWKDFRS\RIWKHZULWWHQDJUHHPHQWDQGDQ\RWKHULQIRUPDWLRQWKH38&7GHHPHGQHFHVVDU\  6%ZDVVLJQHGE\WKH7H[DV*RYHUQRURQ-XQHDQGWRRNHIIHFWRQ6HSWHPEHU7KH38&7UXOHPDNLQJSURFHVV RQ LPSOHPHQWDWLRQ RI 6%  ZDV LQLWLDWHG LQ 6HSWHPEHU  DQG DSSURYHG RQ -XQH    6HH &(57$,1 )$&7256 $))(&7,1*7+((/(&75,&87,/,7<,1'8675<–7KH(OHFWULF8WLOLW\,QGXVWU\*HQHUDOO\–7KH3XEOLF8WLOLW\&RPPLVVLRQ RI7H[DV 38&7   ENVIRONMENTAL RESTRICTIONS OF SENATE BILL 7 AND OTHER RELATED REGULATIONS 6%HQDFWHGLQFRQWDLQVVSHFLILHGHPLVVLRQVUHGXFWLRQUHTXLUHPHQWVIRUFHUWDLQROGHUHOHFWULFJHQHUDWLQJXQLWVZKLFKZRXOG RWKHUZLVHEHH[HPSWIURPWKH7&(4SHUPLWWLQJSURJUDPE\YLUWXHRI JUDQGIDWKHUHGVWDWXV8QGHU6%DQQXDOHPLVVLRQVRI QLWURJHQR[LGHV 12[ IURPVXFKXQLWVZHUHUHGXFHGE\IURPOHYHOVEHJLQQLQJ0D\7KHVHHPLVVLRQVKDYH EHHQ UHSRUWHG RQ D \HDUO\ EDVLV DQG &36(QHUJ\ KDV PHW WKH UHTXLUHPHQWV RI LWV 12[ FDS IRU WKH DSSOLFDEOH XQLWV IRU WKH SDVW FRPSOLDQFH\HDUV&36(QHUJ\KDVILQDO(OHFWULF*HQHUDWLQJ)DFLOLW\ (*) VWDWHSHUPLWVIURPWKH7&(4IRULWVUHPDLQLQJVHYHQ ROGHUHOHFWULFJHQHUDWLQJJDVILUHGXQLWV&36(QHUJ\PD\UHTXLUHIXWXUHDGGLWLRQDOH[SHQGLWXUHVIRUHPLVVLRQFRQWUROWHFKQRORJ\ 6HH6$1$1721,2(/(&75,&$1'*$66<67(06 –&203/,$1&($1'5(*8/$7,21–(QYLURQPHQWDO0DWWHUV– )HGHUDO &OHDQ $LU $FW DQG 6$1 $1721,2 (/(&75,& $1' *$6 6<67(06 – ),1$1&,$/ 0$1$*(0(17 2) 7+( 6<67(06 –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

LVPRUHVWULQJHQWWKDQ&$,57H[DVLVLQFOXGHGLQWKHDQQXDODQGR]RQHVHDVRQ12 [UHGXFWLRQSURJUDPV7KH&6$35ZDVSXWRQ KROGRQ'HFHPEHUXQWLOVHYHUDOOHJDOFKDOOHQJHVZHUHUHVROYHG&$,5ZDVHIIHFWLYHIRUWKHUHSRUWLQJSHULRGVEXW RWKHUZLVH&6$35LVHIIHFWLYH&KDQJHVWRHQYLURQPHQWDOHPLVVLRQFRQWUROVPD\KDYHWKHJUHDWHVWHIIHFWRQFRDOSODQWV6HH6$1 $1721,2(/(&75,&$1'*$66<67(06–&203/,$1&($1'5(*8/$7,21–(QYLURQPHQWDO0DWWHUV–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–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

 2Q'HFHPEHU(5&27WUDQVLWLRQHGIURPD]RQDOPDUNHWGHVLJQWRDQRGDOPDUNHWVLPLODUWRWKRVHLQ0LGZHVW,QGHSHQGHQW 6\VWHP2SHUDWRU 0,62 3HQQV\OYDQLD1HZ-HUVH\0DU\ODQG,QGHSHQGHQW6\VWHP2SHUDWRU 3-0 1HZ
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–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

*RYHUQPHQW&RGH&KDSWHU3HUVRQVPD\REWDLQFRSLHVRIWKHSRUWLRQVRIWKHVHGRFXPHQWVQRWH[FHSWHGIURPGLVFORVXUHXQGHU WKH7H[DV3XEOLF,QIRUPDWLRQ$FWXSRQVXEPLVVLRQRIDZULWWHQUHTXHVWWRWKH6HFUHWDU\RIWKH%RDUGDQGSD\LQJWKHUHDVRQDEOH FRS\LQJKDQGOLQJDQGGHOLYHU\FKDUJHVIRUSURYLGLQJWKLVLQIRUPDWLRQ  7KH2UGLQDQFHREOLJDWHVWKH&LW\DFWLQJE\DQGWKURXJKWKH%RDUGWRSURYLGHFHUWDLQXSGDWHGILQDQFLDOLQIRUPDWLRQDQGRSHUDWLQJ GDWDWRWKH065%DQQXDOO\7KHLQIRUPDWLRQWREHXSGDWHGLQFOXGHVDOOTXDQWLWDWLYHILQDQFLDOLQIRUPDWLRQDQGRSHUDWLQJGDWDZLWK UHVSHFWWRWKH%RDUGRIWKHJHQHUDOW\SHLQFOXGHGLQWKLV2IILFLDO6WDWHPHQWXQGHUWKHKHDGLQJV6$1$1721,2(/(&75,&$1' *$66<67(06–5(7$,/$1':+2/(6$/((/(&75,&$1'1$785$/*$66$/(6–5HWDLO6HUYLFH$UHD–&XVWRPHU %DVH DV RI -DQXDU\   7(1<($5 (/(&75,& &86720(5 67$7,67,&6 ),9(<($5 (/(&75,& $1' *$6 6$/(6 %< &86720(5 &$7(*25< DQG ),9(<($5 67$7(0(17 2) 1(7 5(9(18(6 $1' '(%7 6(59,&( &29(5$*(7DEOHVXQGHU6$1$1721,2(/(&75,&$1'*$66<67(06 –&86720(56$1'5$7(6–&XVWRPHU 5DWHV6$1$1721,2(/(&75,&$1'*$66<67(06–'(6&5,37,212))$&,/,7,(6–(OHFWULF6\VWHP*HQHUDWLQJ &DSDELOLW\)LYH
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

/(*$/0$77(56  $W WKH WLPH RI WKH LQLWLDO LVVXDQFH RI WKH %RQGV WKH &LW\ IXUQLVKHG D FRPSOHWH WUDQVFULSW RI SURFHHGLQJV KDG LQFLGHQW WR WKH DXWKRUL]DWLRQDQGLVVXDQFHRIWKH%RQGVLQFOXGLQJWKHXQTXDOLILHGDSSURYLQJOHJDORSLQLRQRIWKH$WWRUQH\*HQHUDORI7H[DVWRWKH HIIHFW WKDW WKH %RQGV DUH YDOLG DQG OHJDOO\ ELQGLQJ REOLJDWLRQV RI WKH &LW\ DQG EDVHG XSRQ H[DPLQDWLRQ RI VXFK WUDQVFULSW RI 

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

7$;0$77(56 

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ond Counsel’s Original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

RIPXQLFLSDOILQDQFHWRWKHHIIHFWWKDWVXFKDFWLRQZLOOQRWDGYHUVHO\DIIHFWWKHH[FOXGDELOLW\RIWKHLQWHUHVWRQWKH%RQGVIURPWKH JURVVLQFRPHDVGHILQHGLQVHFWLRQRIWKH&RGHRIWKHRZQHUVWKHUHRIIRUIHGHUDOLQFRPHWD[SXUSRVHV7KH2UGLQDQFHSURYLGHV WKDWSULRUWRWDNLQJFHUWDLQDFWLRQVLQFOXGLQJFRQYHUWLQJWKHLQWHUHVWUDWHRQWKH%RQGVIURPRQHUDWHPRGHWRDQRWKHUUDWHPRGH WKH&LW\PXVWKDYHUHFHLYHGVXFKDQRSLQLRQ &RBond Counsel’s Original Opinion was and is not a guarantee of a result, but represented its legal judgment based upon itsUHYLHZ RIH[LVWLQJVWDWXWHVUHJXODWLRQVSXEOLVKHGUXOLQJVDQGFRXUWGHFLVLRQVDQGWKHUHSUHVHQWDWLRQVDQGFRYHQDQWVRIWKH&LW\GHVFULEHG DERYH1RUXOLQJZDVVRXJKWIURPWKH6HUYLFHZLWKUHVSHFWWRWKHPDWWHUVDGGUHVVHGLQWKH2ULJLQDO2SLQLRQDQG&R%ond Counsel’s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

TAX CHANGES  ([LVWLQJODZPD\FKDQJHWRUHGXFHRUHOLPLQDWHWKHEHQHILWWRERQGKROGHUVRIWKHH[FOXVLRQRILQWHUHVWRQWKH%RQGVIURPJURVV LQFRPHIRUIHGHUDOLQFRPHWD[SXUSRVHV$Q\SURSRVHGOHJLVODWLRQRUDGPLQLVWUDWLYHDFWLRQZKHWKHURUQRWWDNHQFRXOGDOVRDIIHFW WKHYDOXHDQGPDUNHWDELOLW\RIWKH%RQGV3URVSHFWLYHSXUFKDVHUVRIWKH%RQGVVKRXOGFRQVXOWZLWKWKHLURZQWD[DGYLVRUVZLWK UHVSHFWWRDQ\SURSRVHGRUIXWXUHFKDQJHVLQWD[ODZ  

TAX ACCOUNTING TREATMENT OF PREMIUM BONDS

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

5$7,1*6 

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

&2),1$1&,$/$'9,6256  3XEOLF)LQDQFLDO0DQDJHPHQW,QF)LUVW6RXWKZHVWD'LYLVLRQRI+LOOWRS6HFXULWLHV,QFDQG(VWUDGD+LQRMRVD &RPSDQ\,QF &R)LQDQFLDO$GYLVRUV DUHHPSOR\HGDV&R)LQDQFLDO$GYLVRUVWRWKH%RDUGLQFRQQHFWLRQZLWKWKHUHPDUNHWLQJRIWKH%RQGV 7KH&R)LQDQFLDO$GYLVRUV IHHIRUVHUYLFHVUHQGHUHGZLWKUHVSHFWWRWKHUHPDUNHWLQJRIWKH%RQGVLVFRQWLQJHQWXSRQWKHVXFFHVVIXO UHPDUNHWLQJRIWKH%RQGV$OWKRXJKWKH&R)LQDQFLDO$GYLVRUVKDYHUHDGDQGSDUWLFLSDWHGLQWKHSUHSDUDWLRQRIWKLV5HPDUNHWLQJ 0HPRUDQGXPWKH\KDYHQRWLQGHSHQGHQWO\YHULILHGDQ\RIWKHLQIRUPDWLRQVHWIRUWKKHUHLQ7KHLQIRUPDWLRQFRQWDLQHGLQWKLV 5HPDUNHWLQJ 0HPRUDQGXP KDV EHHQ REWDLQHG SULPDULO\ IURP WKH &LW\ V DQG WKH %RDUG V UHFRUGV DQG RWKHU VRXUFHV ZKLFK DUH EHOLHYHGWREHUHOLDEOHLQFOXGLQJILQDQFLDOUHFRUGVRIWKH%RDUGDQGRWKHUHQWLWLHVZKLFKPD\EHVXEMHFWWRLQWHUSUHWDWLRQ1R SHUVRQWKHUHIRUHLVHQWLWOHGWRUHO\XSRQWKHSDUWLFLSDWLRQRIWKH&R)LQDQFLDO$GYLVRUVDVLPSOLFLWRUH[SOLFLWH[SUHVVLRQRIRSLQLRQV DVWRWKHFRPSOHWHQHVVDQGDFFXUDF\RIWKHLQIRUPDWLRQFRQWDLQHGLQWKLV2IILFLDO6WDWHPHQW7KH&R)LQDQFLDO$GYLVRUVKDYHUHOLHG RQWKHRSLQLRQRI&R%RQG&RXQVHODQGKDYHQRWYHULILHGDQGGRQRWDVVXPHDQ\UHVSRQVLELOLW\IRUWKHLQIRUPDWLRQFRYHQDQWVDQG UHSUHVHQWDWLRQVFRQWDLQHGLQDQ\RIWKHOHJDOGRFXPHQWVZLWKUHVSHFWWRWKHIHGHUDOLQFRPHWD[VWDWXVRIWKH%RQGVRUWKHSRVVLEOH LPSDFWRIDQ\SUHVHQWSHQGLQJRUIXWXUHDFWLRQVWDNHQE\DQ\OHJLVODWLYHRUMXGLFLDOERGLHV 

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

5REHUW - :LOOLDPV &3$ WR VHUYH DV LWV H[WHUQDO DXGLWRUV 7KH FXUUHQW FRQWUDFW H[WHQGV WKURXJK WKH ILVFDO \HDU HQGHG -DQXDU\ZLWKDRQH\HDUH[WHQVLRQRSWLRQ 

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



$33(1',;$

BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB

&,7<2)6$1$1721,27(;$6

*(1(5$/'(02*5$3+,&$1'(&2120,&,1)250$7,21

>7+,63$*(,17(17,21$//</()7%/[email protected]

$33(1',;$  &,7<2)6$1$1721,27(;$6 *(1(5$/'(02*5$3+,&$1'(&2120,&,1)250$7,21   7KLV$SSHQGL[FRQWDLQVDEULHIGLVFXVVLRQRIFHUWDLQHFRQRPLFDQGGHPRJUDSKLFFKDUDFWHULVWLFVRIWKH&LW\ RI 6DQ $QWRQLR 7H[DV WKH “&LW\” RU “6DQ $QWRQLR”  DQG RI WKH PHWURSROLWDQ DUHD LQ ZKLFK WKH &LW\ LV ORFDWHG $OWKRXJKWKHLQIRUPDWLRQLQWKLV$SSHQGL[KDVEHHQSURYLGHGE\VRXUFHVEHOLHYHGWREHUHOLDEOHQRLQYHVWLJDWLRQKDV EHHQPDGHE\WKH&LW\WRYHULI\WKHDFFXUDF\RUFRPSOHWHQHVVRIVXFKLQIRUPDWLRQ  3RSXODWLRQDQG/RFDWLRQ   The 2010 Decennial Census (“2010 Census”), prepared by the United States Census Bureau (“U.S. Census Bureau”), found a City population of 1,327,407. )RUWKH6DQ$QWRQLRSRSXODWLRQLWZDVGHWHUPLQHGWKDWWKH 86&HQVXV%XUHDXKDGHUURQHRXVO\DVVLJQHGFHQVXVEORFNVWRWKH&LW\WKDWDUHDFWXDOO\RXWVLGHRIWKH&LW\OLPLWV 7KHUHYLVHG6DQ$QWRQLRSRSXODWLRQLV   The City’s Information Technology Services Department has estimated the City’s population to be 1,453,5 in 2016. The U.S. Census Bureau ranks the City as the second largest in the State of Texas (the “State”) and the seventh largest in the United States (“U.S.”).   7KH&LW\LVWKHFRXQW\VHDWRI%H[DU&RXQW\%H[DU&RXQW\KDGDSRSXODWLRQRIDFFRUGLQJWRWKH 2010 Census. The City’s Information Technology Services Department has estimated Bexar County’s population to EHDQGWKH6DQ$QWRQLRNew Braunfels Metropolitan Statistical Area (“MSA”) population to be  LQ7KH&LW\LVORFDWHGLQVRXWKFHQWUDO7H[DVDSSUR[LPDWHO\PLOHVVRXWKRIWKH6WDWHFDSLWDOLQ$XVWLQ PLOHVQRUWKZHVWRIWKH*XOIRI0H[LFRDQGDSSUR[LPDWHO\PLOHVIURPWKH860H[LFRERUGHUFLWLHVRI'HO5LR (DJOH3DVVDQG/DUHGR   7KHIROORZLQJWDEOHSURYLGHVWKHSRSXODWLRQRIWKH&LW\%H[DU&RXQW\DQGWKH6DQ$QWRQLR1HZ%UDXQIHOV 06$IRUWKH\HDUVVKRZQ  6DQ$QWRQLR &LW\RI %H[DU 1HZ%UDXQIHOV
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–&RXQW\,QIRUPDWLRQ3URMHFWDQG&LW\RI6DQ$QWRQLR,QIRUPDWLRQ 7HFKQRORJ\6HUYLFHV'HSDUWPHQW  

 

$

$UHDDQG7RSRJUDSK\   7KHDUHDRIWKH&LW\KDVLQFUHDVHGWKURXJKQXPHURXVDQQH[DWLRQVDQGQRZFRQWDLQVDSSUR[LPDWHO\VTXDUH PLOHV7KHWRSRJUDSK\RI6DQ$QWRQLRLVJHQHUDOO\KLOO\ZLWKKHDY\EODFNWRWKLQOLPHVWRQHVRLOV7KHUHDUHQXPHURXV VWUHDPVIHGZLWKXQGHUJURXQGVSULQJZDWHU7KHDYHUDJHHOHYDWLRQLVIHHWDERYHPHDQVHDOHYHO  7KUHH
$

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services to the San Antonio area are provided by CPS Energy (“CPS”), an electric and gas XWLOLW\RZQHGE\WKH&LW\WKDWPDLQWDLQVDQGRSHUDWHVFHUWDLQXWLOLWLHVLQIUDVWUXFWXUH7KLVLQIUDVWUXFWXUHLQFOXGHVD JHQHUDWLQJXQLWHOHFWULFV\VWHPDQGWKHJDVsystem that serves the San Antonio area. CPS’ operations and debt service UHTXLUHPHQWVIRUFDSLWDOLPSURYHPHQWVDUHSDLGIURPUHYHQXHVUHFHLYHGIURPFKDUJHVWRLWVFXVWRPHUV$VVSHFLILHG LQWKH&LW\RUGLQDQFHVDXWKRUL]LQJWKHLVVXDQFHRILWVV\VWHPGHEW&36LVREOLJDWHGWRWUDQVIHUDSRUWLRQRILWVUHYHQXHV to the City. CPS revenue transfers to the City for the City’s fiscal year ended September 30, 201ZHUH (See “San Antonio Electric and Gas Systems” herein.)   :DWHUVHUYLFHVWRPRVWRf the City are provided by the San Antonio Water System (“SAWS”), San Antonio’s PXQLFLSDOO\RZQHG ZDWHU VXSSO\ ZDWHU GHOLYHU\ DQG ZDVWHZDWHU WUHDWPHQW XWLOLW\  6$:6 LV LQ LWV  WK \HDU RI operation as a separate, consolidated entity. SAWS’ operating anGGHEWVHUYLFHUHTXLUHPHQWVIRUFDSLWDOLPSURYHPHQWV DUHSDLGIURPUHYHQXHVUHFHLYHGIURPFKDUJHVWRLWVFXVWRPHUV6$:6LVREOLJDWHGWRWUDQVIHUDSRUWLRQRILWVUHYHQXHV to the City. SAWS revenue transfers to the City for the City’s fiscal year ended SHSWHPEHUZHUH (See “San Antonio Water System” herein.)   2Q-DQXDU\E\RSHUDWLRQRIOHJLVODWLRQSDVVHGE\WKH QG7H[DV/HJLVODWXUHDQGSRSXODUYRWHKHOG RQ1RYHPEHUWKH&LW\DFWLQJE\DQGWKURXJK6$:6DVVXPHGWKH%H[DU0HWURSROLWDQ:DWHU'LVWULFW 6HH “San Antonio Water System –)RUPHU%H[DU0HWURSROLWDQ:DWHU'LVWULFWDQGWKH'LVWULFW6SHFLDO3URMHFW” herein.)  (FRQRPLF)DFWRUV   7KH&LW\IDFLOLWDWHVDIDYRUDEOHEXVLQHVVHQYLURQPHQWWKDWVXSSRUWVHFRQRPLFGLYHUVLILFDWLRQDQGJURZWK6DQ Antonio’s economic base is composed of a variety of industries, including convention and tourism, healthcare and ELRVFLHQFHJRYHUQPHQWHPSOR\PHQWDXWRPRWLYHPDQXIDFWXULQJLQIRUPDWLRQVHFXULW\ILQDQFLDOVHUYLFHVDQGRLODQG gas, all with growing international trade. Support for these economic activities is demonstrated in the City’s FRPPLWPHQWWRRQJRLQJLQIUDVWUXFWXUHLPSURYHPHQWVDQGGHYHORSPHQWDQGLQYHVWPHQWLQDJURZLQJDQGGHGLFDWHG ZRUNIRUFH7KLVFRPPLWPHQWDQG6an Antonio’s continued status as one of the top leisure and convention destinations LQWKHFRXQWU\VXSSRUWDVWURQJDQGJURZLQJHFRQRP\   San Antonio’s rate of unemployment fares well when compared to the State and nation. The San Antonio 1HZ%UDXQIHOV06$XQHPSOR\PHQWUDWHGHFUHDVHGWRLQ$XJXVWGRZQIURPUHSRUWHGLQ-XO\  7KH 7H[DV XQDGMXVWHG DFWXDO  XQHPSOR\PHQW UDWH GHFUHDVHG WR  LQ $XJXVW  GRZQ IURP  UHSRUWHGLQ-XO\The nation’VXQDGMXVWHG DFWXDO XQHPSOR\PHQWUDWHGHFUHDVHGWRLQ$XJXVWGRZQ IURPUHSRUWHGLQ-XO\   7RWDOQRQIDUPHPSOR\PHQWLQWKH6DQ$QWRQLR1HZ%UDXQIHOV06$IRU$XJXVWZDV6LQFH $XJXVWWKH6DQ$QWRQLR1HZ%UDXQIHOV06$KDVDGGHGMREVIRUDQDQQXDOJURZWKUDWHRI    

$

1 "         7KH KHDOWKFDUH DQG ELRVFLHQFH LQGXVWU\ LV WKH ODUJHVW LQGXVWU\ LQ WKH 6DQ $QWRQLR HFRQRP\ DQG KDV H[SHULHQFHGUREXVWJURZWKVLQFHWKHHDUO\V7KHLQGXVWU\LVFRPSRVHGRIUHODWHGLQGXVWULHVVXFKDVUHVHDUFK SKDUPDFHXWLFDOVDQGPHGLFDOGHYLFHPDQXIDFWXULQJFRQWULEXWLQJDSSUR[LPDWHO\WKHVDPHHFRQRPLFLPSDFWDVKHDOWK VHUYLFHV  $FFRUGLQJ WR WKH San Antonio’s Health Care and Bioscience Industry: 2014 Economic Impact Study FRPPLVVLRQHGE\WKH*UHDWHU6DQ$QWRQLR&KDPEHURI&RPPHUFHWKHHFRQRPLFLPSDFWIURPWKLVLQGXVWU\VHFWRU totaled approximately $30.6 billion in 2013. The industry provided 164,537 jobs, or more than 18% of the City’s total HPSOR\PHQW7KHKHDOWKFDUHDQGELoscience industry’s annual payroll in 2013 approached $7.6 billion. The 2013 DYHUDJH DQQXDO ZDJH RI 6DQ $QWRQLR ZRUNHUV ZDV  FRPSDUHG WR  IRU KHDOWKFDUH DQG ELRVFLHQFH HPSOR\HHV7KHKHDOWKFDUHDQGELRVFLHQFHLQGXVWU\KDVDGGHGQHWQHZMREVRYHUWKHSDVWGHFDGHDQLQFUHDVH RI   +HDOWK&DUH$FFRUGLQJWRWKH6RXWK7H[DV0HGLFDO&HQWHU$UHD3URJUHVV5HSRUWZULWWHQE\WKH6DQ $QWRQLR 0HGLFDO )RXQGDWLRQ WKH acre South Texas Medical Center (the “Medical Center”) has over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entral to the Medical Center is the University of Texas Health Science Center at San Antonio (the “UT Health Science Center”), located on more than 100 acres in the heart of the Medical Center. $WRWDORIVWXGHQWV (including residents and fellows) are enrolled in the UT Health Science Center’s five schools –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one of the country’s leading health sciences universities, and ranks in the WRSRIDOOLQVWLWXWLRQVZRUOGZLGHUHFHLYLQJIHGHUDOIXQGLQJIURPWKH1DWLRQDO,QVWLWXWHVof Health (“NIH”). The university’s schools of medicine, nursing, dentistry, health professions, and graduate biomedical sciences have SURGXFHGPRUHWKDQJUDGXDWHVVLQFHLQFHSWLRQ   The UT Health Science Center’s newlyRSHQHG 0HGLFDO $UWV DQG 5HVHDUFK &HQWHU RIIHUV VWDWHRIWKHDUW SDWLHQWFDUHXQGHU870HGLFLQH6DQ $QWRQLRDQGLWV&DQFHU7KHUDS\ 5HVHDUFK&HQWHUDQGLVRQHRIRQO\IRXU National Cancer Institute (“NCI”) designated Cancer Centers in Texas. In September 2015, UT +HDOWK 6FLHQFH Center’s 'HQWDO6FKRROUHJDUGHGDVRQHRIWKHWRSLQWKHQDWLRQRSHQHGLWVQHZO\EXLOWVTXDUHIRRW&HQWHU IRU2UDO+HDOWK&DUH 5HVHDUFK    7KHUHDUHQXPHURXVRWKHUPHGLFDOIDFLOLWLHVRXWVLGHWKHERXQGDULHVRIWKH0HGLFDO&HQWHULQFOXGLQJVKRUW term general hospitals, two children’s psychiatric hospitals, and two State hospitals. The U.S. Department of Defense (“DoD”) has historically operated two major regional hospitals in San Antonio, Wilford Hall Medical Center (“Wilford Hall”), today known as the Wilford Hall Ambulatory Surgical Center (“WHASC”), and Brooke Army Medical Center (“BAMC”), today known as the San Antonio Military Medical Center (“SAMMC”). As a result of the 2005 Base Realignment and Closure actions (“BRAC 2005”), DoD is inYHVWLQJRYHUELOOLRQLQWZRSURMHFWV H[SDQGLQJ%$0&LQWRRQHRIWZRQDWLRQDO'R'5HJLRQDO0HGLFDO&HQWHUVDQGFRQVWUXFWLQJDQHZRXWSDWLHQWFOLQLF WRUHSODFH:LOIRUG+DOO%$0&DOVRSDUWLFLSDWHVZLWK87+HDOWK6FLHQFH&HQWHUDQG8QLYHUVLW\+RVSLWDOLQRSHUDWLQJ WZR/HYHO,WUDXPDFHQWHUVLQWKHFRPPXQLW\   2Q )HEUXDU\   &LW\ &RXQFLO DXWKRUL]HG DQ HFRQRPLF GHYHORSPHQW LQFHQWLYH SDFNDJH IRU WKH 0HWURSROLWDQ 0HWKRGLVW +RVSLWDO ([SDQVLRQ LQFOXGLQJ D  JUDQW IRU WKH FUHDWLRQ RI MREV ORFDWHG LQ WKH

$

City’s downtown area. Methodist Healthcare System proposed a $43.6 million expansion of its intensive care unit ORFDWHGDW0F&XOORXJK$YHQXH7KHSURMHFWZDVWREHFRQVWUXFWHGLQWZRSKDVHVDQGLQFOXGHWKHIROORZLQJ 3KDVHDQLQYHVWPHQWRIPLOOLRQLQUHDODQGSHUVRQDOSURSHUW\FRQVWUXFWLRQRIDVTXDUHIRRWIDFLOLW\ that includes 24 Intensive Care Unit (“ICU”) beds and their respective support facilities that would enable the UHORFDWLRQRIH[LVWLQJODERUDWRU\IDFLOLWLHVDQGDOORZIRUWKHH[SDQVLRQRIWKHHQGRVFRS\IDFLOLWLHVWKHFUHDWLRQRI QHZIXOOWLPHMREVDQG3KDVHFRQVWUXFWLRQRIDGGLWLRQDO,&8EHGVDQGWKHLUUHVSHFWLYHVXSSRUWIDFLOLWLHVDQGWKH FUHDWLRQRIILYHIXOOWLPHMREV6LQFHRSHQLQJLQ-DQXDU\WKH0HWKRGLVW+RVSLWDOKDVUHSRUWHGFUHDWLQJ MREVDQGLQYHVWLQJPLOOLRQIRUWKHSURMHFWZKLFKDGGHGVTXDUHIHHWRIQHZVSDFHWRWKHGRZQWRZQKRVSLWDO 7KDWVSDFHZLOOKRXVHH[SDQGHGUDGLRORJ\DQGHPHUJHQF\GHSDUWPHQWVHUYLFHVDQHZJDVWURLQWHVWLQDOODEDQGD EHGLQWHQVLYHFDUHXQLW$GGLWLRQDOVSDFHLQWKHQHZWRZHULVUHVHUYHGIRUIXWXUHJURZWKQHHGV   Two major hospital systems are combining efforts to build a freestanding children’s hospital in San Antonio. 7KH7HQHW+HDOWKFare Corp. (“Tenet”) along with Vanguard Health Systems (“Vanguard”), the parent company of Baptist Health System, have combined efforts to develop a new children’s hospital in San Antonio. This effort is EHLQJOHGE\WKH87+HDOWK6FLHQFH&HQWHUDQG%H[DUCounty’s University Health System to form a partnership where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ntonio’s position as an innovator in the biomedical field   The Texas Research Park (the “Park”) is a 1,236DFUHFDPSXVRZQHGDQGRSHUDWHGE\WKH7H[DV5HVHDUFK  Technology Foundation (“TRTF”), a 501(c)( QRQprofit organization. TRTF is San Antonio’s champion for driving HFRQRPLF GHYHORSPHQW LQ WKH ELRVFLHQFHV DQG WHFKQRORJ\ LQGXVWU\  7KH 3DUN LV KRPH WR WKH 87 +HDOWK 6FLHQFH Center’s Research Park Campus, which includes the Institute for Biotechnolog\WKH6RXWK7H[DV&HQWHUVIRU%LRORJ\ LQ 0HGLFLQH DQG WKH %DUVKRS ,QVWLWXWH IRU /RQJHYLW\ DQG $JLQJ  6HYHUDO ELRSKDUPDFHXWLFDO DQG PHGLFDO GHYLFH FRPPHUFLDOYHQWXUHVFDOOWKH3DUNKRPHDVZHOO757)DOVRGHYHORSVDQGIXQGVQHZLQQRYDWLYHWHFKQRORJ\YHQWXUHV focused on building San Antonio’s emerging technology economy.   The Texas Biomedical Research Institute (“Texas Biomed”), formerly the Southwest Foundation for %LRPHGLFDO5HVHDUFKZKLFKFRQGXFWVIXQGDPHQWDODQGDSSOLHGUHVHDUFKLQWKHPHGLFDOVFLHQFHVLVRQHRIWKHODUJHVW LQGHSHQGHQWQRQSURILWELRPHGLFDOUHVHDUFKLQVWLWXWLRQVLQWKH86DQGLVLQWHUQDWLRQDOO\UHQRZQHG$VRQHRIWKH world’s leading independent biomedical research institutions, Texas Biomed is dedicated to advancing the healthRI San Antonio’s global community through innovative biomedical research. Today, Texas Biomed’s multidisciplinary WHDPRIGRFWRUDOOHYHOVFLHQWLVWVZRUNVRQPRUHWKDQPDMRUUHVHDUFKSURMHFWV   /RFDWHG RQ D DFUH FDPSXV LQ WKH &LW\ 7H[DV %LRPHG SDUWQHUV ZLWK KXQGUHGV RI UHVHDUFKHUV DQG LQVWLWXWLRQVDURXQGWKHZRUOGSXUVXLQJDGYDQFHVLQWKHSUHYHQWLRQDQGWUHDWPHQWRIKHDUWGLVHDVHGLDEHWHVREHVLW\ FDQFHURVWHRSRURVLVSV\FKLDWULFGLVRUGHUVWXEHUFXORVLV$,'6KHSDWLWLVPDODULDSDUDVLWLFLQIHFWLRQVDQGDKRVWRI other diseases. Texas Biomed is the site of the Southwest National Primate Research Center and home to the world’s ODUJHVWEDERRQUHVHDUFKFRORQ\LQFOXGLQJDXQLTXHSHGLJUHHGEDERRQFRORQ\WKDWLVLQYDOXDEOHIRUJHQHWLFVWXGLHVRQ FRPSOH[GLVHDVHV   7H[DV%LRPHGHQMR\VDGLVWLQJXLVKHGKLVWRU\LQWKHLQQRYDWLYHKXPDQHDQGDSSURSULDWHXVHRIQRQKXPDQ SULPDWHVLQELRPHGLFDOUHVHDUFK7H[DV%LRPHGDOVRLVKRPHWRRWKHUH[WUDRUGLQDU\UHVRXUFHVWKDWJLYHLWVVFLHQWLVWV DQGWKHLUFRllaborators an advantage in the search for discoveries to fight disease. With the nation’s only privately RZQHGELRVDIHW\OHYHOODERUDWRU\GHVLJQHGIRUPD[LPXPFRQWDLQPHQW7H[DV%LRPHGLQYHVWLJDWRUVFDQVDIHO\VWXG\ GHDGO\SDWKRJHQVIRUZKLFKWKHUHFXUUHQWO\DUHQRWUHDWPHQWVRUYDFFLQHVLQFOXGLQJSRWHQWLDOELRWHUURUDJHQWVDQG HPHUJLQJGLVHDVHV$QRWKHUUHVRXUFHWKDWSXWVWKH757)RQWKHFXWWLQJHGJHRIELRPHGLFDOUHVHDUFKLVWKH$7 7 *HQRPLFV &RPSXWLQJ &HQWHU, which houses the world’s largest computer cluster for human genetic and genomic UHVHDUFK7KLVKLJKSHUIRUPDQFHFRPSXWLQJIDFLOLW\DOORZVVFLHQWLVWVWRVHDUFKIRUGLVHDVHLQIOXHQFLQJJHQHVDWUHFRUG VSHHG 

$

 7KH87+HDOWK6FLHQFH&HQWHUKDVEHHQDPDMRUELRVFLHQFHUHVHDUFKHQJLQHVLQFHLWVLQFHSWLRQZLWKVWURQJ UHVHDUFK JURXSV LQ FDQFHU FDQFHU SUHYHQWLRQ GLDEHWHV GUXJ GHYHORSPHQW JHULDWULFV JURZWK IDFWRU DQG PROHFXODU JHQHWLFV KHDUW GLVHDVH VWURNH SUHYHQWLRQ DQG PDQ\ RWKHU ILHOGV  (VWDEOLVKHG E\ WKH ODUJHVW VLQJOH RQFRORJ\ endowment in the nation’s history, $200 million from the State tobacco settlement, the Greehey Children’s Cancer 5HVHDUFK,QVWLWXWHLVSDUWRIWKH87+HDOWK6FLHQFH&HQWHU7KH87+HDOWK6FLHQFH&HQWHUDORQJZLWKWKH&DQFHU 7KHUDS\ DQG 5HVHDUFK &HQWHU IRUP WKH 6DQ $QWRQLR &DQFHU ,QVWLWXWH D 1&,GHVLJQDWHG &RPSUHKHQVLYH &DQFHU &HQWHU   The University of Texas at San Antonio (“UTSA”) houses a number of research institutes. The Neuroscience 5HVHDUFK&HQWHUZKLFKLVIXQGHGE\PLOOLRQLQRQJRLQJJUDQWVLVWDVNHGZLWKWUDLQLQJVWXGHQWVLQUHVHDUFKVNLOOV while they perform basic neuroscience research on subjects such as aging and Alzheimer’s disease. UTSA is also a SDUWQHULQ0RUULV.8GDOO&HQWHUVRf Excellence for Parkinson’s Disease Research, which provides research for the causes and treatments of Parkinson’s disease and other neurodegenerative disorders. A joint partnership between 876$WKH87+HDOWK6FLHQFH&HQWHUDQGWKHSDUWLFLSDWLRQRI7H[DV%LRPHGDQGWKH6RXWKZHVW1DWLRQDO3ULPDWH 5HVHDUFK&HQWHUKDVUHVXOWHGLQWKHIRUPDWLRQRIWKH6DQ$QWRQLR,QVWLWXWHRI&HOOXODUDQG0ROHFXODU3ULPDWRORJ\ (“SAICMP”). The focus of the SAICMP is the study of primate stem cells and early embryos to deveORSQRQKXPDQ PRGHOV\VWHPVIRUVWXGLHVRISULPDWHVWHPFHOOVDQGWKHLUDSSOLFDWLRQVWRUHJHQHUDWLYHPHGLFLQHDVZHOODVWRGHYHORS PHWKRGVRISULPDWH WUDQVJHQHVLVDQGWRIDFLOLWDWH RWKHULQYHVWLJDWLRQVRISULPDWH HPEU\RORJ\DQGELRJHQHVLV7KH 6RXWK 7H[Ds Center for Emerging Infectious Diseases (“STCEID”) was established to focus State and national DWWHQWLRQ RQ 876$ LQ WKH ILHOGV RI PROHFXODU PLFURELRORJ\ LPPXQRORJ\ PHGLFDO P\FRORJ\ YLURORJ\ PLFURELDO JHQRPLFVYDFFLQHGHYHORSPHQWDQGELRGHIHQVH2QHRIWKHPDMRUDUHDVRIHPSKDVLVDW67&(,'LVRQWKHSDWKRJHQLF PHFKDQLVPVRIHPHUJLQJLQIHFWLRXVGLVHDVHV   $QXPEHURIKLJKO\VXFFHVVIXOSULYDWHFRUSRUDWLRQVVXFKDV0LVVLRQ3KDUPDFDO'37/DERUDWRULHV/WGDQG *HQ]\PH2QFRORJ\,QFRSHUDWHWKHLURZQUHVHDUFKDQGGHYHORSPHQWJURXSVDQGDFWDVJXLGHSRVWVIRUQXPHURXV ELRWHFKVWDUWXSVEULQJLQJQHZGROODUVLQWRWKH6DQ$QWRQLRarea’s economy. A notable example of the results of these firms’ research and development is Genzyme Oncology, Inc., which haVGHYHORSHGHLJKWRIWKHODVWFDQFHUGUXJV approved for general use by the U.S. Food and Drug Administration (“FDA”).   As an equity investment, InCube Labs, LLC (“InCube”) was the impetus for the City to establish the San $QWRQLR (FRQRPLF 'HYHORSPHQW &orporation (“SAEDC”). The mission of the SAEDC is to foster the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n June 2011, the City approved an economic development grant (“EDG”) through the SAEDC to assist in IXQGLQJWKHFRQVWUXFWLRQRIWKH87+HDOWK6FLHQFH&HQter South Texas Research Facility (the “STRF”). This action

$

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he City’s $3.3 million investment in the STRF at UT Health Science Center will greatly enhance the university’s researchFDSDELOLWLHVE\LQFUHDVLQJRSSRUWXQLWLHVIRUJURZLQJORFDOHQWUHSUHQHXUVDQGFRPSDQLHVKHOSLQJ attract top tier researchers and scientists, demonstrating an investment in the City’s local institutions and talent, and SURYLGLQJRSSRUWXQLWLHVWROHYHUDJHRWKHUUHVHDUFKVXFKDVPLOLWDU\PHGLFLQH   7KHPLOOLRQLQYHVWPHQWDOVRSURYLGHVWKH&LW\WKHRSSRUWXQLW\WROHYHUDJHLWVLQYHVWPHQWWKURXJKWKH 6$('&ZKLFKZDVFUHDWHGE\WKH&LW\DVDQRQSURILWFRUSRUDWLRQLQ0D\7KURXJKWKH6$('&WKH&LW\FDQ LQYHVWLQHFRQRPLFGHYHORSPHQWSURMHFWVDQGWDNHRXWDQHTXLW\SRVLWLRQLQDSURMHFWWRSRWHQWLDOO\DFKLHYHDUHWXUQRQ the public’s investment. The UT Health Science Center agreed to enter into an economic development agreement ZLWKWKH6$('&DQGSURYLGHWKH6$('&RYHUWHQ\HDUVDLQWHUHVWLQDQ\HTXLW\SRVLWLRQ HJIRXQGHUVVKDUHV RIVWRFN WDNHQE\WKHXQLYHUVLW\LQVWDUWXSFRPSDQLHVIRUPHGWKURXJKWKHGLVFRYHU\RILQWHOOHFWXDOSURSHUW\RZQHG E\WKHXQLYHUVLW\7KH6$('&FRXOGWKHQSRWHQWLDOO\UHFHLYHDUHWXUQRQLWVLQYHVWPHQWXSWRDFDSRI WKH  SULQFLSDO DPRXQW SOXV DQ DGGLWLRQDO  UHWXUQ  GXULQJ WKH WHUP RI WKH DJUHHPHQW IURP WKH university’s distribution to the SAEDC based on its equity interest in startXS FRPSDQLHV DV WKRVH FRPSDQLHV DUH DFTXLUHGRUJRSXEOLF7KH6$('&KDVDQHTXLW\LQWHUHVWLQWZR87+HDOWK6FLHQFH&HQWHUVWDUWXSFRPSDQLHV   Also through the SAEDC, the City invested $300,000 in assisting Innovative Trauma Care, Inc. (“ITC”) to HVWDEOLVKLWVILUVW86EDVHGRSHUDWLRQVLQ6DQ$QWRQLRWRPDUNHWVHOODQGGLVWULEXWHWKH,7&ODPSDQGHQWHUHGLQWR DQHFRQRPLFGHYHORSPHQWDJUHHPHQWZLWK,7&RQ$XJXVW7KHGHYLFHLVDZRXQGFODPSGHVLJQHGWRFRQWURO VHYHUHEOHHGLQJZLWKLQVHFRQGVRIDSSOLFDWLRQ,QH[FKDQJHIRUILQDQFLDODVVLVWDQFH,7&DJUHHGWRSURYLGHWKH&LW\ WKURXJKLWV6$('&DQHTXLW\LQWHUHVWLQWKHSDUHQWFRPSDQ\’s stock. ITC will add high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“SBS”). SBSDORFDOELRVFLHQFHVWDUWXSFRPSDQ\ZDVIRUPHGLQ1RYHPEHUE\'U;LDR'RQJ&KHQRIWKH 87+HDOWK6FLHQFH&HQWHUDQG'U6WHYH'DYLVDORFDOGHUPDWRORJLVW:KLOHDWWKH87+HDOWK6FLHQFH&HQWHU'U &KHQGLVFRYHUHGDZD\WRLVRODWHDQGH[SDQGDGXOWVWHPFHOOVIRUUHVHDUFKGLDJQRVWLFVDQGWKHUDSHXWLFWUHDWPHQWV 6%6KDVVHFXUHGWZRSDWHQWVRQLWVVWHPFHOOWHFKQRORJ\SODWIRUPVDQGKDVWKUHHRWKHUSDWHQWVSHQGLQJ,Q0D\ 6%6 VLJQHG DQ DJUHHPHQW ZLWK WKH 87 +HDOth Science Center to license, develop, and commercialize Dr. Chen’s WHFKQRORJLHVLQWKHUHJHQHUDWLYHPHGLFLQHPDUNHWZKLFKLVH[SHFWHGWRJURZE\RYHUWKHQH[WVL[\HDUV&LW\ &RXQFLODXWKRUL]HGWKH6$('&WRLQYHVWWKHVHIXQGVLQ6%6WKURXJKDORDQDWDLQWHUHVWUDWHIRUILYH \HDUVLQ exchange for a Convertible Promissory Note (the “Note”) for $200,000. The Note would provide the SAEDC the RSWLRQWRFRQYHUWWKHORDQLQWRSUHIHUUHGVKDUHVRI6%6VWRFNGXULQJWKHWHUPRUWRDFFHSWUHSD\PHQWRIWKHORDQDWWKH HQGRIWKHWHUPZLWKLQWHUHVW  )RUWKHORDQ6%6DJUHHGWRUHWDLQLWVEXVLQHVVRSHUDWLRQVLQ6DQ$QWRQLRIRU WKHWHUPRIWKH1RWHRUXQWLOVXFKWLPHDVWKH6$('&PD\H[HUFLVHLWVRSWLRQWRFRQYHUWWKH1RWHLQWRVKDUHVRIHTXLW\ 6%6DOVRDJUHHGWRUHWDLQDQGFUHDWHDPLQLPXPRIVL[IXOOWLPHMREVE\'HFHPEHUDQGSD\DQDYHUDJHDQQXDO VDODU\RIDWOHDVW$VRI2FWREHU6%6HPSOR\VSHRSOH 

$

 ,Q -XQH  &LW\ &RXQFLO DSSURYHG D  JUDQW RYHU ILYH \HDUV WR UHFUXLW *HUPDQ EDVHG &\WRFHQWULFV,QFWR6DQ$QWRQLRIXUWKHUDGGLQJWRWKHELRVFLHQFHVHFRV\VWHPWKDWSRVLWLYHO\LPSDFWVWKHFRPPXQLW\ &\WRFHQWULFVKDV XQLTXHSDWHQWHGWHFKQRORJ\FDOOHGDF\WRSDWFK PDFKLQH WKDWFRQGXFWV DQDXWRPDWHGFHOODQDO\VLV FDOOHG“SDWFKFODPSLQJ”IRUGUXJWHVWLQJWRPRUHTXLFNO\PHHW)'$WHVWLQJUHTXLUHPHQWVWKLVWHFKQRORJ\UHSODFHVWKH FXUUHQWPDQXDOWHVWLQJPHWKRGV7KHFRPSDQ\SODQVWRFUHDWHKLJKZDJHMREVZLWKDQDYHUDJHVDODU\RIDWOHDVW DQGLQYHVWPLOOLRQ$GGLWLRQDOO\&\WRFHQWULFVZLOOHQWHULQWRDUHVHDUFKGHYHORSPHQWSDUWQHUVKLSZLWK WKH&HQWHUIRU,QQRYDWLYH'UXJ'LVFRYHU\DMRLQWYHQWXUHEHWZHHQWKH876$DQG87+HDOWK6FLHQFH&HQWHUDVZHOO DVDSDUWQHUVKLSIRUZRUNIRUFHGHYHORSPHQWZLWK$ODPR&ROOHJHV   0LOLWDU\ +HDOWK &DUH  San Antonio’s military healthcare facilities have positively impacted the City for GHFDGHV0DQ\PLOLWDU\PHGLFDOWUDQVIRUPDWLRQVFDPHDVDUHVXOWRIWKH%5$&OHJLVODWLRQ   +LVWRULFDOO\%$0&DW-RLQW%DVH6DQ$QWRQLR)RUW6DP+RXVWRQ “JBSAFort Sam Houston”) was known DVDKRVSLWDODQGDQ$UP\8QLWEXWWKH%$0&QDPHLVQRZVSHFLILFDOO\WKHXQLWWKDWFRPPDQGV$UP\PHGLFDODFWLYLW\ in San Antonio. BAMC’s medical facilities include SAMMC, Center for the Intrepid, Fort Sam Houston Primar\ &DUH&OLQLF0F:HWK\7URRS0HGLFDO&OLQLF7D\ORU%XUN&OLQLFDW&DPS%XOOLVDQGWKH6FKHUW]0HGLFDO+RPH 7KHVH%$0&IDFLOLWLHVKDYHDWRWDOZRUNIRUFHRIRYHUSHUVRQQHO   7KH UHQRZQHG KRVSLWDO NQRZQ DV %$0& EHFDPH 6$00& LQ 6HSWHPEHU  DQG KDV H[SDQGHG WR  PLOOLRQVTXDUHIHHWGXHWR%5$&OHJLVODWLRQ6$00&LVWKHODUJHVWLQSDWLHQWPHGLFDOIDFLOLW\LQWKH'R'WKH RQO\'R'%XUQ&HQWHUDQGWKHRQO\'R'/HYHO7UDXPD&HQWHULQWKH866$00&KRVWV&HQWHUVRI([FHOOHQFH IRUDPSXWHHFDUHEXUQFDUHDQGEUHDVWLPDJLQJDQGFRQWDLQVGHGLFDWHGLQSDWLHQWXQLWVIRUERQHPDUURZWUDQVSODQW PDWHUQDOFKLOGDQGQHRQDWDOLQWHQVLYHFDUHDVZHOODVSHGLDWULFEXUQFDUGLDFDQGSV\FKLDWULFFDUH2QDQ\JLYHQGD\ DW6$00&WKHHPHUJHQF\GHSDUWPHQWDYHUDJHVYLVLWVDQGDGPLWVDSSUR[LPDWHO\ILYHFLYLOLDQHPHUJHQFLHVIRXU EDELHVDUHERUQDQGLQSDWLHQWEHGVDUHRFFXSLHG   :+$6& DW -RLQW %DVH 6DQ $QWRQLRLackland (“JBSALackland”) is the largest RXWSDWLHQW DPEXODWRU\ VXUJLFDOFHQWHULQWKH'R'ZLWKPRUHWKDQVXEVSHFLDOWLHVDQG&UHGLWHG*UDGXDWH0HGLFDO(GXFDWLRQWUDLQLQJ SURJUDPV7KHIDFLOLW\LVPDQQHGE\PRUHWKDQSHUVRQQHODQGSURYLGHVSULPDU\DQGVSHFLDOW\FDUHRXWSDWLHQW VXUJHU\DVOHHSFHQWHUDFRQWLQJHQF\DHURPHGLFDOVWDJLQJIDFLOLW\DQGH\HKHDULQJDQGGLDEHWHVFHQWHUVRIH[FHOOHQFH 7KHQHZVTXDUHIRRW$PEXODWRU\6XUJLFDO&HQWHUDW-%6$/DFNODQGRSHQHGLQ,WLVSDUWRIWKH PLOOLRQUHFDSLWDOL]DWLRQRIWKHROG:LOIRUG+DOO0HGLFDO&HQWHUIDFLOLW\   7KH San Antonio Military Health System (“SAMHS”) oversees the healthcare delivery of 230,000 Do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urgical Research (“USAISR”) into a triservice Battlefield Health and Trauma (“BHT”) Research ,QVWLWXWHWKDWKDVEHHQRSHUDWLQJDW)RUW6DP+RXVWRQVLQFH$XJXVW7KH%+7LVFRPSRVHGRIWKH86$,65 1DYDO0HGLFDO5HVHDUFK8QLW6DQ$QWRQLRDQGWKH$LU)RUFH'HQWDO(YDOXDWLRQDQG&RQVXOWDWLRQ6HUYLFH7KLVQHZ UHVHDUFKIDFLOLW\LVDGMDFHQWWRWKH6$00&DQGZDVFUHDWHGWRUHPRYHUHGXQGDQF\DQGFUHDWHDV\QHUJ\LQFRPEDW FDVXDOW\FDUHUHVHDUFK  $       7KHODUJHVWSULYDWHVHFWRUHPSOR\HULQWKe industry is United Services Automobile Association (“USAA”). 7KH FRPSDQ\ KDV DERXW  PLOOLRQ FXVWRPHUV FRPSULVHG RI PLOLWDU\ PHPEHUV YHWHUDQV DQG WKHLU IDPLOLHV  7KH FRPSDQ\FXUUHQWO\HPSOR\VDWRWDORISHRSOH:KLOHWKLVVHFWRULVOHGE\86$$6DQ$QWRQLRLVKRPHWRRWKHU LQVXUDQFHFRPSDQ\KHDGTXDUWHUVVXFKDV&DWKROLF/LIHDQG*30/LIHDVZHOODVEHLQJWKHKRPHWRPDQ\UHJLRQDO RSHUDWLRQVFHQWHUVIRUPDQ\KHDOWKFDUHLQVXUHUV,QVXUHUVZLWKVXEVWDQWLDOUHJLRQDORSHUDWLRQVFHQWHUVLQ6DQ$QWRQLR

$

include Allstate Insurance Company (“Allstate”), Nationwide Mutual Insurance Company (“Nationwide”), Caremark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esort Drive and State Highway 151 on the City’s far west side. As of December 2015, Nationwide reported that it HPSOR\VSHRSOHDWWKLVORFDWLRQ   2Q )HEUXDU\   $OOVWDWH DQQRXQFHG LWV GHFLVLRQ WR ORFDWH D FXVWRPHU RSHUDWLRQV FHQWHU LQYHVW  PLOOLRQDQGFUHDWHQHZIXOOWLPHMREVLQ6DQ$QWRQLR7KHFRUHIXQFWLRQRIWKLVRSHUDWLRQVFHQWHUZLOOVXSSRUW direct sales calls and selling additional insurance products to existing clients. Allstate is the nation’s largest publicly held personal lines insurer. Allstate’s main lines of insurance include automobile, property, life, and retirement and LQYHVWPHQWSURGXFWV$OOVWDWHKDVWZRRWKHUVDOHVVXSSRUWFHQWHUVORFDWHGLQ1RUWKEURRN,OOLQRLV LWVKHDGTXDUWHUV  DQG&KDUORWWH1RUWK&DUROLQD$VRI'HFHPEHU$OOVWDWHUHSRUWHGWKDWLWHPSOR\VSHRSOHDWLWV6DQ$QWRQLR RSHUDWLRQVFHQWHUDQGHYHQWXDOO\H[SHFWVWKHFHQWHUZLOOHPSOR\HPSOR\HHVZKRZLOOVHOO$OOVWDWHSURGXFWVDQG provide service to the company’s customers.   6DQ$QWRQLRLVDOVRWKHKRPHRIPDQ\EDQNLQJKHDGTXDUWHUVDQGUHJLRQDORSHUDWLRQVFHQWHUVVXFKDV)URVW %DQN %URDGZD\ 1DWLRQDO %DQN DQG 86$$ )HGHUDO 6DYLQJV %DQN  ,Q 'HFHPEHU  6HFXULW\ 6HUYLFH )HGHUDO &UHGLW 8QLW “66)&8”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’s diversified economy includes a significant sector relating to the hospitality industry. An Economic Impact Report of San Antonio’s Hospitality Industry (representing 2013 data) found that the hospitality LQGXVWU\KDVDQHFRQRPLFLPSDFWRIPRUHWKDQELOOLRQ7KHHVWLPDWHGDQQXDOSD\UROOIRUWKHLQGXVWU\LV ELOOLRQDQGWKHLQGXVWU\HPSOR\VPRUHWKDQSHRSOH   In 2015, the City’s overall level of hotel occupancy was flat at 0.5%; room supply was flat at WRWDO URRPQLJKWVVROGZDVIODWDWWKHDYHUDJHGDLO\URRPUDWHLQFUHDVHGUHYHQXHSHUDYDLODEOHURRPLQFUHDVHG DQGRYHUDOOUHYHQXHLQFUHDVHG   7RXULVP7KHOLVWRIDWWUDFWLRQVLQWKH6DQ$QWRQLRDUHDLQFOXGHVDPRQJPDQ\RWKHUVWKH$ODPRDQGRWKHU VLWHVRIKLVWRULFVLJQLILFDQFHWKH5LYHU:DONDQGWZRPDMRUWKHPHSDUNV6HD:RUOG6DQ$QWRQLRDQG6L[)ODJV)LHVWD 7H[DV6DQ$QWRQLRDWWUDFWVPLOOLRQ YLVLWRUVD \HDU2IWKHVHRYHUPLOOLRQDUHRYHUQLJKWOHLVXUH YLVLWRUV SODFLQJ6DQ$QWRQLRDVRQHRIWKHWRS86GHVWLQDWLRQVLQ7H[DV5HFHQW)<DFFRPSOLVKPHQWVFRQWULEXWLQJWR the City’s success include: (1) the significant milestone of the San Antonio Missions (the “Missions”) EHLQJRIILFLDOO\ GHVLJQDWHGD81(6&2:RUOG+HULWDJH6LWH7KHGHFLVLRQZDVDQQRXQFHGLQ-XO\DWWKHDQQXDO81(6&2:RUOG +HULWDJHFRPPLWWHHPHHWLQJLQ%RQQ*HUPDQ\$QHOLWHOLVWZLWKMXVWH[LVWLQJ86ODQGPDUNVLQFOXGHGWKHILYH 0LVVLRQV LQFOXGLQJ7KH$ODPR DUHWDNLQJWKHLUSODFHDPRQJRWKHUJUHDW$PHULFDQKLVWRULFDQGFXOWXUDOLQVWLWXWLRQV OLNHWKH6WDWXHRI/LEHUW\DQG,QGHSHQGHQFH+DOOLQDGGLWLRQWRQDWXUDOWUHDVXUHVVXFKDVWKH*UDQG&DQ\RQDQGZRUOG ZRQGHUVOLNHWKH*UHDW:DOORI&KLQD7KH0LVVLRQVZKLFKDUHWKHODUJHVWFROOHFWLRQRI6SDQLVKFRORQLDODUFKLWHFWXUH

$

LQWKH86DUHWKHWKLUGGHVLJQDWLRQLQWKHFRXQWU\LQWKHODVW\HDUV,WLVDQWLFLSDWHGWKLVGHVLJQDWLRQZLOODIIRUG 6DQ$QWRQLRJUHDWHURSSRUWXQLW\WRPDUNHWDQGDWWUDFWDGGLWLRQDOFXOWXUDOWUDYHOHUVWRH[SHULHQFH6DQ$QWRQLRDVD GHstination; (2) San Antonio’s hosting of two episodes of the popular ABC show 7KH %DFKHORUHWWH7KHHSLVRGHV IHDWXUHGRQHVSHFLDOJURXSGDWHDQGWZRRQHRQRQHGDWHVDPRQJVWWKHSLFWXUHVTXHEDFNGURSRI6DQ$QWRQLR7H[DV )DQVRIWKHVKRZGLVFRYHUHG6DQ$QWonio’s rich culture, historic landmarks and breathtaking landscape all with the %DFKHORUHWWH.DLWO\Q%ULVWRZHDQG  UHSRUWHGDQHVWLPDWHGPLOOLRQLQ(DUQHG0HGLD9DOXHIRU)<7KLV PHGLD YDOXH LV WKH GROODU YDOXH RI WKH SRVLWLYH PHGLD FRYHUDJH JHQHUDWHG E\ 6DQ $QWRQLR &RQYHQWLRQ  9LVLWRUV Bureau’s (“CVB”) communications team, which represents the stories and articles in print (i.e., magazines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
 'DWDREWDLQHGIURP6PLWK7UDYHO5HVHDUFKEDVHGRQKRWHOVLQWKH6DQ$QWRQLR VHOHFWHG]LSFRGHUHSRUWVGDWHG-DQXDU\ UHSRUWLQJDQGQXPEHUV DQGKLVWRULFDODQQXDOUHSRUWVIRUSULRU\HDUV  5HIOHFWVRQO\WKRVHFRQYHQWLRQVKRVWHGE\WKH&9% 6RXUFH&LW\RI6DQ$QWRQLR&RQYHQWLRQDQG9LVLWRUV%XUHDX

          7KH JURZWK LQ QHZ PLVVLRQV DQG VLJQLILFDQW FRQVWUXFWLRQ DFWLYLWLHV EURXJKW DERXW E\ %5$&  VWUHQJWKHQHG 6DQ $QWRQLR’V UROH DV D OHDGLQJ PLOLWDU\ UHVHDUFK WUDLQLQJ DQG HGXFDWLRQ FHQWHU  2QH RI WKH PDMRU RXWFRPHVRI%5$&ZDVWKHFUHDWLRQRI-RLQW%DVH6DQ$QWRQLR “-%6$” ZKLFKLVWKHODUJHVWMRLQWEDVHLQWKH 8QLWHG6WDWHV-%6$FRQVROLGDWHVDOOWKHEDVHVXSSRUWIXQFWLRQVUHDOSURSHUW\DQGODQGIRU-%6$/DFNODQG-%6$ 5DQGROSKDQG-%6$)RUW6DP+RXVWRQ LQFOXGLQJ&DPS%XOOLV XQGHUWKHQG$LU%DVH:LQJ-%6$LQFOXGHVRYHU DFUHVVXSSRUWVSHUVRQQHOKDVDSODQWUHSODFHPHQWYDOXHRIELOOLRQDQGDQDQQXDOEXGJHWRI PLOOLRQ2YHUSHUVRQQHODUHWUDLQHGDW-%6$IDFLOLWLHVHYHU\\HDU   -%6$ DQG LWV PRUH WKDQ  PLVVLRQ SDUWQHUV UHSUHVHQW D VLJQLILFDQW FRPSRQHQW RI WKH &LW\’V HFRQRP\ SURYLGLQJDQDQQXDOHFRQRPLFLPSDFWZKHQFRPELQHGZLWKRWKHU'R'FRQWUDFWVDQGFRQWUDFWRUVPLOLWDU\UHWLUHHV

$

YHWHUDQVDQGGLUHFWDQGLQGLUHFWMREVRIRYHUELOOLRQIRUWKH&LW\,QDGGLWLRQWKHSURSHUW\RIWKHIRUPHU%URRNV $LU)RUFH%DVH “%URRNV$)%” DIRXUWKPDMRUPLOLWDU\LQVWDOODWLRQZDVWUDQVIHUUHGIURPWKH86$LU)RUFHWRWKH &LW\FUHDWHG%URRNV'HYHORSPHQW$XWKRULW\ “%'$” LQDVSDUWRIWKH%URRNV&LW\%DVH3URMHFW “%URRNV&LW\ %DVH” )XUWKHUPRUHWKHPLOLWDU\LVVWLOOOHDVLQJRYHUPLOOLRQVTXDUHIHHWRIVSDFHDW3RUW6DQ$QWRQLR WKH“3RUW”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“)6+53” IRUWKHUHGHYHORSPHQWRIWKHIRUPHU%URRNH$UP\0HGLFDO&HQWHUDQGWZRRWKHUEXLOGLQJVDW)RUW 6DP+RXVWRQ7KHVHWKUHHEXLOGLQJVWRWDOLQJDERXWVTXDUHIHHWLQVSDFHDQGORFDWHGLQDGHVLJQDWHGKLVWRULF GLVWULFWKDGEHHQYDFDQWIRUVHYHUDO\HDUVDQGZHUHLQDGHWHULRUDWLQJFRQGLWLRQ2Q-XQH)6+53VLJQHGD \HDUOHDVHZLWKWKH86$UP\WRUHGHYHORSDQGOHDVHWKHVHWKUHHSURSHUWLHVWRFRPPHUFLDOWHQDQWV   6RPH RI WKH PDMRU PLVVLRQ SDUWQHU RUJDQL]DWLRQV RQ -%6$)RUW 6DP +RXVWRQ DUH 86$UP\ 1RUWK WKH $UP\ ,QVWDOODWLRQ 0DQDJHPHQW &RPPDQG WKH $UP\ 0HGLFDO &RPPDQG 86 $UP\ 6RXWK WKH $UP\ 0HGLFDO 'HSDUWPHQW DQG 6FKRRO WKH 6RXWKHUQ 5HJLRQDO 0HGLFDO &RPPDQG %URRNH $UP\ 0HGLFDO &HQWHU WKH 0HGLFDO (GXFDWLRQDODQG7UDLQLQJ&DPSXVWKH0LVVLRQDQG,QVWDOODWLRQ&RQWUDFWLQJ&RPPDQGWKH1DY\0HGLFLQH(GXFDWLRQ DQG7UDLQLQJ&RPPDQG7KUHH$UP\5HVHUYH'HSRWVD1DY\0DULQH5HVHUYH2SHUDWLRQV&HQWHUDQGD7H[DV$UP\ 1DWLRQDO*XDUGDUPRU\   7KHSRWHQWLDOHFRQRPLFLPSDFWIURP-%6$)RUW6DP+RXVWRQGXHWRWKH%5$&H[SDQVLRQDORQJZLWK PDMRUJURZWKIURPWKH$UP\0RGXODU)RUFHDQG$UP\*URZWKH)RUFHSURJUDPVLVHVWLPDWHGDWQHDUO\ELOOLRQ 7KH HFRQRPLF LPSDFW GXH WR WKH DPRXQW RI FRQVWUXFWLRQ RQ SRVW WR DFFRPPRGDWH WKH QHZ PLVVLRQ DFFRXQWV IRU DSSUR[LPDWHO\RIWKHLPSDFW ELOOLRQ :KLOHWKHPDMRUVXUJHRIFRQVWUXFWLRQIURP%5$&DQGWKH RWKHUPDMRUIRUFHSURJUDPVDUHFRPSOHWHWKHHFRQRPLFLPSDFWIURP-%6$)RUW6DP+RXVWRQZLOOLQFUHDVHE\QHDUO\ ELOOLRQDQQXDOO\ ZLWKDGGLWLRQDODQQXDOVDOHVWD[UHYHQXH RIPLOOLRQ7KH PDMRUSHUVRQQHO PRYHV XQGHU %5$&ZHUHFRPSOHWHGE\6HSWHPEHUDQGWKLVLQFUHDVHLQSHUVRQQHODQGPLVVLRQVDW-%6$)RUW6DP +RXVWRQFRXOGVXSSRUWWKHHPSOR\PHQWRIRYHULQWKHFRPPXQLW\   9DULRXVFRQVWUXFWLRQSURMHFWVFRQWLQXHDW-%6$)RUW6DP+RXVWRQ7KHQHZ:DOWHUV6WUHHW*DWHDQG(QWU\ &RQWURO3RLQWDQGDQHZ0HGLFDO(GXFDWLRQDQG7UDLQLQJ&DPSXV+HDGTXDUWHUV%XLOGLQJKDYHEHHQFRPSOHWHG$ QHZ6WXGHQW$FWLYLW\&HQWHURSHQHGLQ1RYHPEHUDQGFRQVWUXFWLRQZDVFRPSOHWHGRQDQHZ6$00&9LVLWRU &RQWURO&HQWHUDQG(QWU\&RQWURO3RLQWLQ-DQXDU\$QHZURRPKRWHOZDVFRPSOHWHGLQ2FWREHUDQG DQHZURRPDSDUWPHQWVW\OHGRUPLWRU\ZLOOEUHDNJURXQGLQ$VPDOODGGLWLRQWRWKHKRVSLWDOIRUDK\SHUEDULF FKDPEHUDQGDQHZILUHVWDWLRQIRUWKH6$00&DUHDDUHH[SHFWHGWREHFRPSOHWHGLQ$XJXVWDQG6HSWHPEHU UHVSHFWLYHO\DQGDQHZ$UP\$LU)RUFH([FKDQJH6HUYLFHV([FKDQJH0DLQ6WRUHLVSODQQHGIRURU  -%6$&DPS%XOOLV$UPHG)RUFHVPHGLFVDW-%6$)RUW6DP+RXVWRQUHFHLYHDGGLWLRQDOILHOGWUDLQLQJDW -%6$&DPS%XOOLVZKLFKFRPSULVHVDFUHV-%6$&DPS%XOOLVLVDOVRXVHGE\WKHWK7UDLQLQJ:LQJIRU 6HFXULW\)RUFHVWHFKQLFDODQGSURIHVVLRQDOGHYHORSPHQW WUDLQLQJ$GGLWLRQDOO\-%6$&DPS%XOOLVLVKRPHWRWKH 86$) 0HGLFDO 7UDLQLQJ 5HDGLQHVV &HQWHU ZKLFK HQFRPSDVVHV IRXU PHGLFDO UHODWHG FRXUVHV  ,W LV DOVR KRPH WR PXOWLSOH $UP\ 5HVHUYH DQG $UP\ 1DWLRQDO *XDUG XQLWV RI DOO W\SHV WR LQFOXGH 0LOLWDU\ ,QWHOOLJHQFH (QJLQHHU 0HGLFDO ,QIDQWU\ DQG 6SHFLDO )RUFHV  7KH WK 0LOLWDU\ ,QWHOOLJHQFH %ULJDGH KHDGTXDUWHUHG DW -%6$)RUW 6DP +RXVWRQ RSHUDWHV WKH ,16&20 'HWHQWLRQ 7UDLQLQJ )DFLOLW\ DW -%6$&DPS %XOOLV DQG WKH 'HIHQVH 0HGLFDO 5HDGLQHVV7UDLQLQJ,QVWLWXWHRSHUDWHVWKH&RPEDW&DVXDOW\&DUH&RXUVH-%6$&DPS%XOOLVDOVRVXSSRUWVUHJXODUXVH E\ ORFDO ODZ HQIRUFHPHQW DJHQFLHV DQG )HGHUDO HQWLWLHV  ,Q  -%6$&DPS %XOOLV VXSSRUWHG WKH WUDLQLQJ RI DSSUR[LPDWHO\ SHUVRQQHO  %HFDXVH RI LWV JHRJUDSKLFDO VL]H QXPHURXV XQLWV DQG PLVVLRQV DUH FRQWLQXDOO\ ORRNLQJDW-%6$&DPS%XOOLVDVDYLDEOHSODFHWRORFDWHDQGWUDLQ   -%6$/DFNODQG-%6$/DFNODQGLVKRPHWRWKHWK7UDLQLQJ:LQJVLWXDWHGRQDFUHVDOOZLWKLQWKH FLW\OLPLWVRI6DQ$QWRQLR$FFRUGLQJWRDUHFHQW(FRQRPLF,PSDFW$QDO\VLVRYHUPLOLWDU\FLYLOLDQVWXGHQW

$

FRQWUDFWRUVDQGPLOLWDU\GHSHQGHQWVZRUNUHFHLYHWUDLQLQJRUXWLOL]H-%6$/DFNODQGVHUYLFHV-%6$/DFNODQGKRVWV WKH $LU )RUFH’V RQO\ %DVLF 0LOLWDU\ 7UDLQLQJ “%07”  IXQFWLRQ IRU DOO HQOLVWHG DLUPHQ ZKLFK LV NQRZQ DV WKH “*DWHZD\WRWKH$LU)RUFH”$GGLWLRQDOO\-%6$/DFNODQGKRVWVPDQ\RIWKHWHFKQLFDOWUDLQLQJFRXUVHVZKLFKWKH %07 JUDGXDWHV DUH URXWHG WR SULRU WR WKHLU ILUVW DVVLJQPHQW  2Q DQ DQQXDO EDVLV -%6$/DFNODQG LV H[SHFWHG WR JUDGXDWHWUDLQHHVSHU\HDU7KH$LU)RUFHLVLQWKHPLGGOHRIDPLOOLRQSURJUDPWRUHSODFHWKH%07 5HFUXLW+RXVLQJDQG7UDLQLQJEXLOGLQJVWKDWKDYHEHHQLQFRQWLQXRXVRSHUDWLRQVLQFHFRQVWUXFWLRQLQWKHODWHV &RQVWUXFWLRQ LV QRZ FRPSOHWH IRU WKUHH RI WKH $LUPHQ 7UDLQLQJ &RPSOH[HV “$7&”  DQG WKH ILUVW WZR 'LQLQJ&ODVVURRP)DFLOLWLHV “'&)” WKDWVXSSRUWWKH$7&V&RQVWUXFWLRQLVDOVRFRPSOHWHIRUWKH3ILQJVWRQ%07 5HFHSWLRQ &HQWHU HYHU\ QHZ UHFUXLW’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’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“&\EHU”WK$LU)RUFHFRQVLVWLQJRIDSSUR[LPDWHO\SHUVRQQHODQGWKH$LU)RUFH5HDO3URSHUW\ $JHQF\   -%6$5DQGROSK  -%6$5DQGROSK ZKLFK LV NQRZQ DV “WKH 6KRZSODFH RI WKH $LU )RUFH” EHFDXVH RI LWV FRQVLVWHQW6SDQLVK&RORQLDO5HYLYDODUFKLWHFWXUDOVWDQGDUGUHWDLQHGIURPZKHQWKHLQVWDOODWLRQZDVILUVWFRQVWUXFWHGLQ WKH HDUO\ V LV RQ WKH QRUWKHDVW VLGH RI 6DQ $QWRQLR DQG KRXVHV WKH +HDGTXDUWHU $LU (GXFDWLRQ DQG 7UDLQLQJ &RPPDQGDQGWKH$LU)RUFH3HUVRQQHO&HQWHU2WKHUPDMRUWHQDQWRUJDQL]DWLRQVLQFOXGHWKH$LU)RUFH0DQSRZHU $JHQF\WK$LU)RUFHWKH$LU)RUFH5HFUXLWLQJ6HUYLFHDQGWKH$LU)RUFH2IILFHRI6SHFLDO,QYHVWLJDWLRQV 5HJLRQ  7KHPDLQRSHUDWLRQDOPLVVLRQLVFDUULHGRXWE\WKHWK)O\LQJ7UDLQLQJ:LQJ WKH“:LQJ” ZKLFKHTXLSVDQG WUDLQV DYLDWRUV DQG VXSSRUWV ZRUOGZLGH FRQWLQJHQF\ RSHUDWLRQV  7KH WK )O\LQJ 7UDLQLQJ :LQJ RSHUDWHV SDUDOOHO UXQZD\VRQHLWKHUVLGHRIWKHPDLQLQVWDOODWLRQIDFLOLWLHVDQGFRQGXFWVKRXUDGD\IOLJKWWUDLQLQJRSHUDWLRQV,QD UHODWHG DYLDWLRQ PLVVLRQ -%6$5DQGROSK ZKLFK UHFHQWO\ DGGHG  LQVWUXFWRUV DQG VWDII WR LWV 5HPRWHO\ 3LORWHG $LUFUDIW “53$” WUDLQLQJXQLWZLOOSURGXFH53$SLORWVWRPDQDQ8QPDQQHG$HULDO6\VWHPV “8$6” IRUFHZKLFK QRZHQFRPSDVVHVRIWRWDO$LU)RUFHSLORWPDQQLQJ7KH8$6IRUFHLVSURMHFWHGWRJURZE\DSSUR[LPDWHO\ EHWZHHQ)<DQG)<   7KH%5$&JURZWKVXSSRUWHGWKH&LW\’VHFRQRPLFGHYHORSPHQWVWUDWHJ\WRSURPRWHGHYHORSPHQWLQ WDUJHWHG DUHDV RI WKH &LW\ WR OHYHUDJH PLOLWDU\ LQVWDOODWLRQ HFRQRPLF DVVHWV WR FUHDWHMREV DQG WR DVVLVW WKH &LW\’V PLOLWDU\LQVWDOODWLRQVLQUHGXFLQJEDVHVXSSRUWRSHUDWLQJFRVWV   6DQ$QWRQLRLVKRPHWRWZRODUJHSURMHFWVZKLFKVHUYHDOORIWKHPLOLWDU\EUDQFKHV7KH$XGLH/0XUSK\ 9HWHUDQV$GPLQLVWUDWLRQ+RVSLWDOZKLFKLQFOXGHVDQHZPLOOLRQ/HYHO,3RO\WUDXPD&HQWHUZDVFRPSOHWHGLQ  7KLVKRVSLWDOLVGHVLJQHGWREHWKH PRVWDGYDQFHGLQWKH ZRUOGDQGLVFDSDEOHRISURYLGLQJVWDWHRIWKHDUW PHGLFDOFDUHWRYHWHUDQVZLWKPXOWLSOHVHULRXVLQMXULHV6DQ$QWRQLRLVDOVRKRPHWRWKH1DWLRQDO7UDXPD,QVWLWXWH “17,”  D FROODERUDWLYH PLOLWDU\FLYLOLDQ WUDXPD LQVWLWXWH LQYROYLQJ 6$00& 8QLYHUVLW\ +RVSLWDO WKH 87 +HDOWK

$

6FLHQFH&HQWHUDQGWKH86$,657KH17,FRRUGLQDWHVUHVRXUFHVIURPWKHLQVWLWXWLRQVWRPRVWHIIHFWLYHO\WUHDWWKH WUDXPDYLFWLPVDQGWKHLUIDPLOLHV   ,QWKH6DQ$QWRQLRFRPPXQLW\SXWLQSODFHRUJDQL]DWLRQVDQGPHFKDQLVPVWRDVVLVWWKHFRPPXQLW\DQG WKH PLOLWDU\ ZLWK WKH %5$&  DQG RWKHU PLOLWDU\UHODWHG LVVXHV  7KH 0LOLWDU\ 7UDQVIRUPDWLRQ 7DVN )RUFH “077)” LVD&LW\%H[DU&RXQW\DQG*UHDWHU6DQ$QWRQLR&KDPEHURI&RPPHUFHRUJDQL]DWLRQZKLFKSURYLGHVD VLQJOHLQWHJUDWHGYRLFHIURPWKHFRPPXQLW\WRWKHPLOLWDU\7KH077)LVIRUPHGRIVHYHUDOFRPPLWWHHVHDFKGHGLFDWHG WRZRUNLQJZLWKWKHFRPPXQLW\DQGPLOLWDU\RQWKH%5$&DFWLRQVDQGSRVW%5$&DFWLRQV   ,Q-DQXDU\WKH&LW\HVWDEOLVKHGWKH2IILFHRI0LOLWDU\$IIDLUV “20$”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’VHIIRUWWRJDWKHURYHUPLOOLRQLQUHVRXUFHVDQGIXQGLQJIURPERQG SURFHHGV&LW\IXQGLQJIHGHUDOHDUPDUNVDQGJUDQWVWRSURYLGHVLJQLILFDQWLQIUDVWUXFWXUHLPSURYHPHQWVDURXQG)RUW 6DP+RXVWRQ7KHSUHPLHUSURMHFWZDVWKHUHFRQVWUXFWLRQDQGZLGHQLQJRI:DOWHUV6WUHHWDSULPDU\HQWUDQFHWR)RUW 6DP+RXVWRQ7KLVSURMHFWZDVVXEVWDQWLDOO\FRPSOHWHGLQ-XQHRI7KLVSURMHFWZDVFRPSOH[VLQFHLWZDVWKH FHQWHUVHJPHQWRIDFRRSHUDWLYHHIIRUWMRLQLQJWKHDOUHDG\FRPSOHWHG7H[DV'HSDUWPHQWRI7UDQVSRUWDWLRQ “7['27”  LPSURYHPHQWVRQ,+WRDQHZKLJKVHFXULW\JDWHHQWUDQFHWKDWZDVFRPSOHWHGE\)RUW6DP+RXVWRQ$QHYHQ PRUHXQLTXHSURMHFWLVWKH&LW\’VFRQVWUXFWLRQRIDPXFKLPSURYHGEULGJHRYHU6DODGR&UHHNRQ%LQ](QJOHPDQ5RDG ZKLFKZDVDFWXDOO\EXLOWRQIHGHUDOSURSHUW\DQGZDVJLIWHGWRWKHPLOLWDU\XSRQFRPSOHWLRQLQ-XQHRI2WKHU NH\SURMHFWVLQFOXGHLQWHUVHFWLRQLPSURYHPHQWVRQ+DUU\:XU]EDFK5RDGEHWZHHQWKH-%6$)RUW6DP+RXVWRQ*DWH DQG5LWWLPDQ5RDGDQGWKHFRQVWUXFWLRQRIDQHZEULGJHRQ5LWWLPDQ5RDGZHVWRI,+7KH&LW\DOVRH[SHQGHG VLJQLILFDQWIXQGLQJWRVXSSRUWGHYHORSPHQWDORQJ:DOWHUV6WUHHWE\LPSURYLQJXWLOLWLHVLQVWDOOLQJDQHZZDWHUOLQHDQG LPSURYLQJQXPHURXVVLGHVWUHHWVLQWKDWDUHD7KHVHLPSURYHPHQWVDUHQRZFRPSOHWH7KH&LW\ZDVDOVRVHOHFWHGE\ WKH'R'’V2IILFHRI(FRQRPLF$GMXVWPHQWWRUHFHLYHDQDZDUGRIPLOOLRQLQIHGHUDOIXQGVWRFRQVWUXFWQHZUDPS FRQQHFWRUV EHWZHHQ ,+ DQG /RRS  QHDU 6$00&  7KLV SURMHFW LV XQGHU FRQVWUXFWLRQ  7KLV LQLWLDWLYH ZLWK 7['27ZLOOJUHDWO\LPSURYHWUDIILFIORZDQGVDIHW\IRUSHUVRQQHOVHHNLQJDFFHVVWRWKHPHGLFDOIDFLOLW\DUHD   &XUUHQWO\'R'LVWKHFRPPXQLW\’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of Commerce in 2010, the aerospace industry’s annual economic impact to the City was about $5.4 billion. This LQGXVWU\SURYLGHVDSSUR[LPDWHO\MREVZLWKHPSOR\HHVHDUQLQJWRWDODQQXDOZDJHVRIRYHUPLOOLRQ7KH DHURVSDFHLQGXVWU\FRQWLQXHVWRH[SDQGDVWKH &LW\OHYHUDJHVLWVNH\DHURVSDFH DVVHWV ZKLFKLQFOXGH 6DQ$QWRQLR ,QWHUQDWLRQDO$LUSRUW6WLQVRQ0XQLFLSDO$LUSRUWWKH3RUW-%6$5DQGROSK-%6$/DFNODQGDQGWUDLQLQJLQVWLWXWLRQV 0DQ\ RI WKH PDMRU DHURVSDFH LQGXVWU\ SDUWLFLSDQWV VXFK DV %RHLQJ /RFNKHHG 0DUWLQ *HQHUDO (OHFWULF 3UDWW  :KLWQH\ 5D\WKHRQ &HVVQD 6DQ $QWRQLR $HURVSDFH – D GLYLVLRQ RI 6LQJDSRUH 7HFKQRORJLHV 6RXWKZHVW $LUOLQHV $PHULFDQ$LUOLQHV'HOWD$LU/LQHV8QLWHG$LUOLQHV86$LUZD\V)HG([836DQGRWKHUVKDYHVLJQLILFDQWRSHUDWLRQV

$

LQ6DQ$QWRQLR7KHDHURVSDFHLQGXVWU\LQ6DQ$QWRQLRLVGLYHUVLILHGZLWKFRQWLQXHGJURZWKLQDLUSDVVHQJHUVHUYLFH DLUFDUJRPDLQWHQDQFHUHSDLURYHUKDXODQGJHQHUDODYLDWLRQ   In February 2011, Southwest Airlines (“SWA”) finalized its acquisition of AirTran Holdings, Inc. for $1.4 ELOOLRQ LQ FDVK DQG VWRFN  7KH DFTXLVLWLRQ SURYLGHG 6:$ ZLWK D SUHVHQFH LQ  QHZ FLWLHV LQFOXGLQJ +DUWVILHOG Jackson Atlanta International Airport (AirTran’s main hub) and two AirTran customer service centers in Orlando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maintenance responsibilities for the nation’s executive fleet due to a decision to close a Wichita, Kansas plant. The DLUFUDIW PDLQWHQDQFH DQd support work moving to San Antonio will include improvements to the nation’s fleet of H[HFXWLYHMHWVLQFOXGLQJ$LU)RUFH2QHWKH%RHLQJVWKDWWUDQVSRUWWKH3UHVLGHQWRIWKH8QLWHG6WDWHVDQGWKHMHWV WKDWWUDQVSRUWWKH9LFH3UHVLGHQW&DELQHWPHPEHUVDQGRWKHUJRYHUQPHQWRIILFLDOV   $SSOLHG5HVHDUFKDQG'HYHORSPHQW. The Southwest Research Institute (“SwRI”) is one of the original and ODUJHVWLQGHSHQGHQWQRQSURILWDSSOLHGHQJLQHHULQJDQGSK\VLFDOVFLHQFHVUHVHDUFKDQGGHYHORSPHQWRUJDQL]DWLRQVLQ WKH86VHUYLQJLQGXVWULHVDQGJRYHUQPHQWVDURXQGWKHZRUOGLQWKHHQJLQHHULQJDQGSK\VLFDOVFLHQFHVILHOG6Z5, has contracts with the Federal Aviation Administration (the “FAA”), General Electric, Pratt & Whitney, and other RUJDQL]DWLRQVWRFRQGXFWUHVHDUFKRQPDQ\DVSHFWVRIDYLDWLRQLQFOXGLQJWHVWLQJV\QWKHWLFMHWIXHOGHYHORSLQJVRIWZDUH WRDVVLVWZLWKMHWHQJLQHGHVLJQDQGWHVWLQJWXUELQHVDIHW\DQGPDWHULDOVVWDELOLW\6Z5,RFFXSLHVDFUHVDQG SURYLGHVQHDUO\WZRPLOOLRQVTXDUHIHHWRIODERUDWRULHVWHVWIDFLOLWLHVZRUNVKRSVDQGRIILFHVIRUDSSUR[LPDWHO\ scientists, engineers, and support personnel. SwRI’s total revenue for FY 201ZDVPLOOLRQPDQDJLQJPRUH WKDQSURMHFWVZLWKH[SHQGLWXUHVRIPRUHWKDQPLOOLRQWRLWVLQWHUQDOO\VSRQVRUHGUHVHDUFKDQGGHYHORSPHQW SURJUDPZKLFKLVGHVLJQHGWRHQFRXUDJHQHZLGHDVDQGLQQRYDWLYHWHFKQRORJLHV   ,QIRUPDWLRQ7HFKQRORJ\. The information technology (“IT”) industry plays a major role in San Antonio. 7KHHFRQRPLFLPSDFWRI,7DQGF\EHUEXVLQHVVDOUHDG\PHDVXUHVLQWKHELOOLRQV ELOOLRQLQZLWKFRQVHUYDWLYH HVWLPDWHVRIJURZWKWRELOOLRQLQ 7KHLQGXVWU\LWVHOILVERWKODUJHDQGGLYHUVHLQFOXGLQJ,7DQG,QWHUQHW UHODWHGILUPVWKDWSURGXFHDQGVHOO,7SURGXFWV6DQ$QWRQLRLVSDUWLFXODUO\VWURQJLQLQIRUPDWLRQVHFXULW\,QIDFW San Antonio is recognized as a national leader in this vital field, with the U.S. Air Force’s Air Intelligence Agency, a large and growing National Security Agency (“NSA”) presHQFH DQG WKH &HQWHU IRU ,QIUDVWUXFWXUH $VVXUDQFH DQG Security (“CIAS”) at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

$

KDVDOVREHHQDFWLYHO\LQYROYHGZLWKVHFWRUbased Information Sharing and Analysis Centers’ security preparedness H[HUFLVHVIRURUJDQL]DWLRQVLQFULWLFDOLQIUDVWUXFWXUHV   Chevron U.S.A. Inc. (“Chevron”) selected San Antonio as the site for the construction of a 130,000 square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he company’s customers include 15 of the top 100 global companies and five of the top 10 companies, including ORFDOFRPSDQLHVVXFKDV&KULVWXV+HDOWK6FKOXPEHUJHUDQG+DOOLEXUWRQ&LW\&RXQFLODSSURYHGDVL[\HDUWD[ DEDWHPHQWDJUHHPHQWZLWK&\UXV2QHRQLWVSODQQHGLQYHVWPHQWRIDSSUR[LPDWHO\PLOOLRQLQUHDODQGSHUVRQDO SURSHUW\LPSURYHPHQWVDQGWKHFUHDWLRQRIQHZIXOOWLPHMREV   0DQXIDFWXULQJ,QGXVWU\Toyota Motor Corporation (“Toyota”), one of the largest manufacturing employers LQ 6DQ $QWRQLR ZLWK DQ HVWLPDWHG ZRUNIRUFH RI RYHU  H[SDQGHG LWV ORFDO SURGXFWLRQ LQ  DGGLQJ WKH SURGXFWLRQRIWKH7DFRPDWUXFNDWLWVPDQXIDFWXULQJIDFLOLW\LQ6DQ$QWRQLR7R\RWDVKLIWHGLWV7DFRPDPDQXIDFWXULQJ IURP)UHPRQW&DOLIRUQLDWR6DQ$QWRQLRFUHDWLQJDQDGGLWLRQDOMREVDQGLQYHVWLQJPLOOLRQLQQHZSHUVRQDO SURSHUW\LQYHQWRU\DQGVXSSOLHV7R\RWDDQGLWVRQVLWHVXSSOLHUVORFDWHGRQ6Dn Antonio’s south sideVXSSRUW Toyota’s production of Tundra and Tacoma vehicles, generating an estimated annual impact of $1.7 billion. Toyota DQGWKHVXSSOLHUVWKDWKDYHFRQWUDFWVZLWKWKH&LW\KDYHFUHDWHGDWRWDORIQHZDQGUHWDLQHGMREVWKURXJK 'HFHPEHU   NBTY Manufacturing Texas, LLC (“NBTY”) is the largest vertically integrated manufacturer of nutritional VXSSOHPHQWVLQWKH8QLWHG6WDWHV7KHFRPSDQ\PDQXIDFWXUHV ZKROHVDOHVDQGUHWDLOVPRUHWKDQSURGXFWV LQFOXGLQJYLWDPLQVPLQHUDOVKHUEVDQGVSRUWVGULQNV7KHFRPSDQ\VHOOVLWVJRRGVWKURXJKSKDUPDFLHVZKROHVDOHUV VXSHUPDUNHWVDQGKHDOWKIRRGVWRUHVDURXQGWKHZRUOG1%7<LVRZQHGE\WKHLQYHVWPHQWILUP7KH&DUO\OH*URXS which purchased 100% of the firm’s publicly WUDGHGVKDUHVRQ2FWREHU1%7<FRQVLGHUHGDQH[SDQVLRQRI LWVYLWDPLQPDQXIDFWXULQJRSHUDWLRQVDW'LYLGHQG–WKHVLWHRIWKHIRUPHU-XGVRQ$WNLQVRQ&DQGLHV,QFZKLFK FORVHGLWVRSHUDWLRQVLQ1RYHPEHU1%7<DOVRFRQVLGHUHGRWKHUSRWHQWLDOVLWHVLQ/RQJ,VODQG1HZ
$

LQ7KHVHQHZMREVZLOOKDYHDQDQQXDODYHUDJHZDJHRIDSSUR[LPDWHO\ZLWKDWOHDVWRIWKH MREVSD\LQJRUPRUH0DQ\RIWKHVHMREVDUHFRUSRUDWHOHYHOSRVLWLRQVZLWKGHFLVLRQPDNLQJDXWKRULW\RYHU PDMRUFRPSDQ\IXQFWLRQV$VRI'HFHPEHU3(7&2KDVUHSRUWHGHPSOR\LQJSHRSOHLQLWVIDFLOLW\3(7&2 LVWKHVHFRQGODUJHVW86UHWDLOHURIVSHFLDOW\SHWVXSSOLHV3(7&2RSHUDWHVPRUHWKDQVWRUHVLQDOOVWDWHV DQGWKH'LVWULFWRI&ROXPELDPDNLQJLWWKHRQO\SHWVWRUHWRFRYHUWKHHQWLUH86PDUNHW   Glazer’s Wholesale Drug Company (“Glazer’s”), headquartered in Dallas, is one of the largest beverage GLVWULEXWRUVLQWKH867KH FRPSDQ\UHSUHVHQWVDZLGHYDULHW\RIZLQHVSLULWVPDOWEHYHUDJHDQGQRQDOFRKROLF VXSSOLHUVLQVWDWHVDQGHPSOR\Vover 6,000 people. Glazer’s has operated in San Antonio since 1940 and is currently ORFDWHGDW$QLRO6WUHHWZKHUHLWHPSOR\VSHRSOHGlazer’s UHTXHVWHGDQDPHQGPHQWWRD7D[$EDWHPHQW $JUHHPHQWZLWKWKH&LW\GDWHG$XJXVWWRUHIOHFWDQHZLQYHVWPHQWRIRYHUPLOOLRQLQUHDODQGSHUVRQDO property at a new facility purchased by Glazer’s, and creation of 100 new jobs and retainment of 350 jobs, for a total of 450 jobs to be located at the new facility. Glazer’s also purchased an additLRQDODFUHVRI&LW\RZQHGODQG DGMDFHQWWRWKHSUHYLRXVDFUHSXUFKDVHWRDFFRPPRGDWHWKHODUJHUIDFLOLW\&LW\VWDIIQHJRWLDWHGWRVHOOWKHDGGLWLRQDO land for $399,999 plus a $75,000 charitable donation by Glazer’s to the City for the benefit of WDUJHWHG DUHD UHGHYHORSPHQWVXFKDVWKHCity’s :HVWVLGHZLWKSD\PHQWVRIRYHUHDFKRIWKHWKUHH\HDUVIURPWR    *UHHQ7HFKQRORJ\&36(QHUJ\UHODWHG*UHHQ7HFKQRORJ\DQG6DQ$QWRQLR(OHFWULFDQG*DV6\VWHPVDUH FRYHUHGLQWKHERG\RIWKLV5HPDUNHWLQJ0HPRUDQGXP 

  *%   2Q)HEUXDU\WKH&LW\&RXQFLODSSURYHGWKH,QQHU&LW\5HLQYHVWPHQW,QILOO3ROLF\DVDVWUDWHJ\WR VWLPXODWHJURZWKLQWKHLQQHUFLW\&XUUHQWPDUNHWWUHQGVVXSSRUWDUHQHZHGLQWHUHVWLQWKHKHDUWRI6DQ$QWRQLRDV LOOXVWUDWHGE\VWXGLHVFRQGXFWHGIRU6DQ$QWRQLRVXFKDVWKH'RZQWRZQ+RXVLQJ6WXG\WKH5HDO(VWDWH0DUNHW9DOXH $QDO\VLVDQGWKH+RXVLQJ7UDQVSRUWDWLRQ$IIRUGDELOLW\,QGH[,QSDUWLFXODUWKH5HDO(VWDWH0DUNHW9DOXH$QDO\VLV shows that a substantial portion of San Antonio’s core has very high rates of vacant properties, properties that could EHSXWWRXVHWRVXSSRUWLQFUHDVLQJGHPDQGIRUQHDUGRZQWRZQKRXVLQJMREVDQGVHUYLFHV7KLVSROLF\HVWDEOLVKHV WKH,QQHU&LW\5HLQYHVWPHQW,QILOO3ROLF\7DUJHW$UHDDVWKHKLJKHVWSULRULW\IRULQFHQWLYHV6SHFLILFDOO\WKHIROORZLQJ DFWLRQVDUHHQGRUVHG  ZDLYHURIFHUWDLQ&LW\IHHVDQG6$:6IHHVZLWKLQWKHWDUJHWDUHDDQG  JUHDWHULQFHQWLYHV IRUHFRQRPLFGHYHORSPHQWSURMHFWVZLWKLQWKHWDUJHWDUHD7KHSROLF\LVGHVLJQHGWRFRPEDWVSUDZOE\VWUHQJWKHQLQJ San Antonio’s vibrant urban core and driving investment into the heart of the City.   Argo Group US, Inc. (“Argo”) moved its insurance operations from Menlo, California to SaQ$QWRQLRLQ DQGPDLQWDLQVLWV86FRUSRUDWHKHDGTXDUWHUVLQ6DQ$QWRQLR,Q$UJRPHUJHGZLWK3;5(*URXS/WGD %HUPXGDEDVHGSURSHUW\UHLQVXUHUDQGHVWDEOLVKHGLWVLQWHUQDWLRQDOKHDGTXDUWHUVLQ%HUPXGD$UJRKDVDERXW HPSOR\HHVZRUOGZLGHLQHLJKWFRXQWULHVLQFOXGLQJRIILFHVLQVWDWHVZLWKDQQXDOUHYHQXHVRIDSSUR[LPDWHO\ ELOOLRQ$UJRZDVORFDWHGDW5HXQLRQ3ODFHDQGFRQVLGHULQJUHORFDWLRQRILWV6DQ$QWRQLRRSHUDWLRQVWRRWKHU VLWHV ZLWKLQ 6DQ $QWRQLR DV ZHOO DV WR VLWHV LQ RWKHU 86 FLWLHV  ,Q RUGHU WR UHWDLQ WKHVH JRRGSD\LQJ FRUSRUDWH headquarters jobs in San Antonio, the City offered Argo free parking at the St. Mary’s garage for ten years valued at DSSUR[LPDWHO\IRUXSWRSDUNLQJVSDFHV,QH[FKDQJHIRUWKLVILQDQFLDOLQFHQWLYH$UJRORFDWHGRYHU MREVDWWKH,%&&HQWUHEXLOGLQJDW(+RXVWRQ6WUHHWDQGKDVDJUHHGWRUHWDLQWKHVHMREVDWWKLVORFDWLRQIRU WKHWHQyear term of the agreement. Argo also agreed to meet the City’s minimum ZDJHUHTXLUHPHQWVDQGSD\DQ DYHUDJHDQQXDOVDODU\RIDWOHDVW7KHVHLQFHQWLYHVZHUHDSSURYHGE\&LW\&RXQFLORQ6HSWHPEHU   HVHC Inc. (“HVHC”) established its headquarters in San Antonio in 1988 and currently employs 440 people DWLWVKHDGTXDUWHUVIDFLOLW\GRZQWRZQZLWKSODQVWRDGGDQRWKHUMREVRYHUWKHQH[WWZR\HDUV+9+&RSHUDWHVWKH WKLUGODUJHVWRSWLFDOUHWDLOVHFWRULQWKH86XQGHUVHYHUDOEUDQGQDPHVVXFKDV9LVLRQZRUNV7KHFRPSDQ\FXUUHQWO\ RSHUDWHVRYHUUHWDLOVWRUHVLQVWDWHVDQGSODQVWRJURZWRVWRUHVLQWKHQH[WILYH\HDUV&LW\VWDIIPHWZLWK representatives of the company in December 2010 as part of the community’s Business Retention and Expansion program administered through the City’s contract wiWKWKH(FRQRPLF'HYHORSPHQW)RXQGDWLRQ'XULQJWKLVPHHWLQJ &LW\VWDIIOHDUQHGWKHFRPSDQ\SODQQHGWRUHORFDWHIURPLWVFXUUHQWIDFLOLW\DW:HVW$YHQXHDQGZDVFRQVLGHULQJ DFRQVROLGDWLRQDQGH[SDQVLRQRILWVRSHUDWLRQVDWHLWKHUDQRWKHUVLWHLQ6DQ$QWRQLRRULQRWKHU7H[DVFLWLHVLQFOXGLQJ Dallas and Austin. In order to retain the company’s operations and headquarters in San Antonio, the City offered the IROORZLQJILQDQFLDOLQFHQWLYHVWR+9+&  DFDVKJUDQWRISD\DEOHRYHUWZR\HDUVDWSHUMRE

$

created/retained, and (2) approximately $2,923,200 in parking subsidies in the St. Mary’s garage over ten years, to LQFOXGHIUHHSDUNLQJIRUXSWRHPSOR\HHVIRUILYH\HDUVDQGSDUNLQJDWDGLVFRXQWIRUXSWRHPSOR\HHV IRUDQRWKHUILYH \HDUV,QH[FKDQJHIRUWKHVHILQDQFLDOLQFHQWLYHV +9+&DJUHHGWR  UHWDLQLWVRSHUDWLRQVDQG FRUSRUDWHKHDGTXDUWHUVLQ6DQ$QWRQLR  UHORFDWHFRUSRUDWHMREVWRWKH,%&&HQWUHEXLOGLQJRQ+RXVWRQ6WUHHW  UHORFDWHLWVYLVLRQFDUHEHQHILWVVXEVLGLDU\'DYLV9LVLRQIURP/DWKDP1HZ
$

 )RXUWHHQRIWKH3Rrt’s customers are aerospaceUHODWHGILUPVLQFOXGLQJLQGXVWU\OHDGHUV%RHLQJ/RFNKHHG Martin, StandardAero, Chromalloy, Gore Design Completions (“Gore”), and Pratt & Whitney. Of the 14,000 workers DWWKH3RUWDERXWDUHHPSOR\HGLQWKHDHURVSDFHVHFWRU   7KH3RUWUHDFKHGLPSRUWDQWPLOHVWRQHVLQDVIXUWKHUGHVFULEHGEHORZSRVLWLRQLQJLWDQGLWVFXVWRPHUV IRUIXUWKHUJURZWKDVDQLPSRUWDQWHFRQRPLFHQJLQHIRUWKHUHJLRQ   ,Q WKH DHURVSDFH VHFWRU %RHLQJ 6DQ $QWRQLR FRQWLQXHV WKH OHJDF\ RI DYLDWLRQ DV D KLJK SHUIRUPDQFH QDWLRQDOO\UHFRJQL]HGIDFLOLW\7KHFRPSDQ\ZKLFKKDVEHHQRSHUDWLQJDW.HOO\)LHOGVLQFHZLWKDIRFXVRQ PDLQWHQDQFHUHSDLUDQGRYHUKDXORIPLOLWDU\DLUFUDIWZHOFRPHGLWVILUVW'UHDPOLQHULQWKHVSULQJRI7KH DLUSODQHLVRQHRI IRXU VFKHGXOHGWRXQGHUJRFKDQJH LQFRUSRUDWLRQ HOHFWURQLFVDQG VRIWZDUH XSJUDGHV  DWWKH3RUW EHIRUHILQDOFRPSOHWLRQDQGGHOLYHU\WRFXVWRPHUVZRUOGZLGH,QDGGLWLRQWKHILUVWRIVL[QHZWDQNHUVDUULYHG at Boeing’s Port faFLOLW\LQZKHUHWKH\XQGHUZHQWFKDQJHLQFRUSRUDWLRQWKURXJK%DVHGRQWKHVXFFHVVRI WKLVSURMHFWWKH3RUW6DQ$QWRQLR%RHLQJIDFLOLW\ZLOOFRQWLQXHWRLQFRUSRUDWHFRPPHUFLDOPDLQWHQDQFHUHSDLUDQG RYHUKDXOLQWRWKHLURSHUDWLRQV   6LPLODUO\Gore (now called GDC Technics), which is North America’s largest outfitter of custom interiors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unit leads operations to defend the Air Force’s information systems worldwide against the new frontier in warfare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ed in 2016. The first phase of construction which was completed in 2013 starts on the Port’s northwest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– IXUWKHU SRVLWLRQLQJ WKH UHJLRQ DV DQ

$

important and thriving aerospace center. The project is headed by the City’s Capital Improvement Management 6HUYLFHV'HSDUWPHQW$GGLWLRQDOSURMHFWSDUWQHUVLQFOXGHWKH0HWURSROLWDQ3ODQQLQJ2UJDQL]DWLRQ&366$:6DQG 7['27   :KLOH6DQ$QWRQLRLVVHFXULQJLWVSRVLWLRQDVWKHSUHPLHUF\EHUVHFXULW\KXEWKH3RUWLVHPEDUNLQJRQDQHZ SDWKWREHFRPHa major subhub in securing cybersecurity operations at the Port’s campus. The Port is moving forward ZLWKSODQQLQJDQHZF\EHUVHFXULW\FRPSOH[IDFLOLW\WRDFFRPPRGDWHJURZLQJGHPDQGE\ERWKPLOLWDU\DQGSULYDWH sector cybersecurity operations. The Port’s initial plan is to build a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ince the project’s inception, more than 2,400 jobs have been created with aQDYHUDJHVDODU\RI 0RUHWKDQPLOOLRQLQUHDOHVWDWHGHYHORSPHQWKDVRFFXUUHGRQFDPSXVZLWKDQRWKHUPLOOLRQLQSURMHFWV EHLQJSODQQHGDQGFRQVWUXFWHGDW%URRNV&LW\%DVHWKURXJK   Brooks Development Authority (“BDA”) encouraged HFRQRPLFJURZWKQRWLQJWKHIROORZLQJSURMHFWV  x 90&&RQVXOWLQJH[SDQGHGLWVFHQWHUDW%URRNV&LW\%DVHFUHDWLQJDGGLWLRQDOMREVWRVXSSRUW6DQ $QWRQLRFOLHQWEDVH x %URRNV&LW\%DVHLVZRUNLQJWRUHVWRUH+DQJDUDQGPDLQWDLQLWVKLVWRULFDOSUHVHQFHRQFDPSXV x 6SLQHDQG3DLQ&HQWHURI6DQ$QWRQLR3//&VLJQHGDWHQ\HDUOHDVHDJUHHPHQWZLWK%'$7KHFHQWHU RSHQHGLWVGRRUVZLWKDSSUR[LPDWHO\UHQWDEOHVTXDUHIHHW x 7KH/DQGLQJVDW%URRNV&LW\%DVHFRPSOHWHGWKHILUVWSKDVHRIFRQVWUXFWLRQRQDXQLWPXOWLIDPLO\ DSDUWPHQWFRPSOH[7KHGHYHORSPHQWLVRZQHGE\WKH%'$DQGWKH153*URXSLVWKHFRGHYHORSHU x 7KH&LW\FRPSOHWHGFRQVWUXFWLRQRILWVQHZ)LUHDQG3ROLFH(PHUJHQF\'LVSDWFK&HQWHUDVWDWHRIWKH DUWFRPPXQLFDWLRQVIDFLOLW\ORFDWHGDFURVVfrom the City’s Emergency Operations Center and replaced WKHFHQWHUORFDWHGDWWKHSROLFHKHDGTXDUWHUVGRZQWRZQ x %'$ILQDOL]HGDODQGVDOHWR+HDGDQG1HFNDPHGLFDOIDFLOLW\WRHVWDEOLVKDVTXDUHIRRWPHGLFDO RIILFHEXLOGLQJRQWKH%URRNV&LW\%DVH&DPSXV x 2Q-XQHWKH0LVVLRQ7UDLO%DSWLVW+RVSLWDOORFDWHGRQDFUHVDW%URRNV&LW\%DVHRSHQHG LWVGRRUV7KLVIDFLOLW\FRQVLVWVRIWKUHHVWRULHVZLWKWKHFDSDELOLW\RIDGGLQJDGGLWLRQDOIORRUVDQGVTXDUH IRRWDJHDVQHHGHG,WFXUUHQWO\HPSOR\VSHRSOH x In June 2014, the University of the Incarnate Word (“UIW”) announced plans to build the city’s first RVWHRSDWKLFPHGLFDOVFKRRORQWKHFDPSXVRI%URRNV&LW\%DVH x 3KDVHRIWKHPHGLFDOVFKRROZLOOEHJLQZLWKIRXUEXLOGLQJVLQWKHKLVWRULFGLVWULFWRI%URRNV&LW\%DVH 7KHFRVWRIEXLOGLQJWKHVFKRROLVDSSUR[LPDWHO\PLOOLRQ8,:EHJDQOHDVLQJWKHEXLOGLQJVLQ DQGZLOOWDNHRZQHUVKLSDIWHU\HDUV7KHVFKRROLVVFKHGXOHGWRRSHQLQ x &RQVWUXFWLRQKDVEHJXQRQ7KH5HVLGHQFHVDW.HQQHG\+LOODXQLWKLJKHQGDSDUWPHQWSURMHFWDW %URRNV&LW\%DVH153*URXSLVSDUWQHULQJZLWK%URRNV&LW\%DVHRQWKHURXJKO\PLOOLRQSURMHFW 7KH5HVLGHQFHVDW.HQQHG\+LOODUHLQWHQGHGWRKRXVHWKHRUVRIDFXOW\VWDIIDQGVWXGHQWVH[SHFWHG to occupy the adjacent University of the Incarnate Word’s School of Osteopathic Medicine, under construction on the site of Brooks’ former School of Aerospace Medicine. Both are scheduled to open LQIDOO x 2Q-XQH%'$FORVHGRQDEULGJHORDQLQWKHDPRXQWRIIRUGHYHORSPHQWFRVWVDV SDUW RI D ILQDQFLQJ SDFNDJH IRU WKH FRQVWUXFWLRQ RI WKH (PEDVV\ 6XLWHV E\ +LOWRQ +RWHO 3URMHFW &RQVWUXFWLRQLVSURMHFWHGWREHFRPSOHWHGLQ 

$

 7RFRQWLQXHIRVWHULQJHFRQRPLFDFWLYLWLHVRQWKHVRXWKVLGHRI6DQ$QWRQLR%'$KDVOHYHUDJHGUHVRXUFHVLQ WKHIROORZLQJZD\V  x %'$DSSOLHGIRUGHVLJQDWLRQDVDQ(%5HJLRQDO&HQWHULQ-XO\DQGZDVJUDQWHGLWVILUVW(% 5HJLRQDO&HQWHU'HVLJQDWLRQLQ2FWREHU%&%LVGHYHORSLQJDPDVWHUSODQGHYHORSPHQWZLWKWKH JRDORISURPRWLQJDQGVXVWDLQLQJHFRQRPLFGHYHORSPHQWDFWLYLWLHVLQWKHDUHD%&%LVVHHNLQJWRUDLVH (%GROODUVWRIXQGVXFKSURMHFWVDVOX[XU\ORIWVDQGWKHFRQVWUXFWLRQRIDIXOOVHUYLFHKRWHODWWKHIRUPHU $LU)RUFHEDUUDFNV7KHVHVSHFLILFSURMHFWVDPRXQWWRDFDSLWDOLQYHVWPHQWRIDSSUR[LPDWHO\PLOOLRQ DQGDUHH[SHFWHGWRJHQHUDWHDSSUR[LPDWHO\GLUHFWDQGLQGLUHFWQHZMREV x BDA was awarded $1.9 million from the State Energy Conservation Office (“SECO”)IRUHQHUJ\VDYLQJ XSJUDGHVWRHLJKWEXLOGLQJVDQGUHVLGHQWLDOKRXVLQJXQLWV7KH6(&2ORDQVZHUHREWDLQHGE\%'$ IRU HQHUJ\ VDYLQJ XSJUDGHV WR YDULRXV UHVLGHQWLDO KRXVLQJ XQLWV QHZ FKLOOHU V\VWHPV IRU YDULRXV EXLOGLQJVUHSODFHPHQWRIKHDWLQJYHQWLODWLRQDQGDLUFRQGLWLRQLQJV\VWHPVDVVRFLDWHGZLWK%XLOGLQJV DQGDQGXSJUDGHVWR%XLOGLQJVDQGIRULQVWDOODWLRQRIURRIWRSVRODUSDQHOV DQGWKHUHSODFHPHQWRIWKH+9$&V\VWHP   2Q'HFHPEHU&LW\&RXQFLOGHVLJQDWHG%URRNV&LW\%DVHDVD5HLQYHVWPHQW=RQHLQDFFRUGDQFH ZLWK6WDWHVWDWXWHIRUWKHSXUSRVHRIWKH0LVVLRQ6RODUSURMHFW$5HLQYHVWPHQW=RQHGHVLJQDWLRQWRWKH%URRNV&LW\ %DVHVLWHZLOOFRQWULEXWHWRWKHUHWHQWLRQDQGH[SDQVLRQRISULPDU\HPSOR\PHQWDQGDWWUDFWPDMRULQYHVWPHQWLQWKH ]RQH7KH&LW\DOVRSURYLGHG0LVVLRQ6RODUDWD[DEDWHPHQWDQGDQ('*LQFHQWLYH,QWXUQ0LVVLRQ6RODUKDVGHFLGHG WRORFDWHLWVVRODUSDQHOPDQXIDFWXULQJRSHUDWLRQVDQGLWV86FRUSRUDWHKHDGTXDUWHUVDW%URRNV&LW\%DVH0LVVLRQ 6RODUKDVDOVRDJUHHGWRVXSSRUWWKHFUHDWLRQDQGVXVWDLQPHQWRIDUHQHZDEOHHQHUJ\DQGDGYDQFHGPDQXIDFWXULQJ ZRUNIRUFHWKURXJKDFRQWULEXWLRQWRWKH$ODPR&ROOHJHVRYHUILYH\HDUV7KHVHIXQGVZLOOEHXVHGE\WKH $ODPR &ROOHJHV WR FRQWLQXH LWV HIIRUWV WR GHYHORS D FXVWRPL]HG FXUULFXOXP DQG WUDLQLQJ SURJUDP WR VXSSRUW WKH GHYHORSPHQWRIDUHQHZDEOHHQHUJ\ZRUNIRUFH  BBBBBBBBBBBBBBBBBBBBBBBBB 6RXUFHV7KH*UHDWHU6DQ$QWRQLR&KDPEHURI&RPPHUFH6DQ$QWRQLR0HGLFDO)RXQGDWLRQ&LW\RI6DQ$QWRQLR'HSDUWPHQWRI ,QWHUQDWLRQDODQG(FRQRPLF'HYHORSPHQW'HSDUWPHQW&RQYHQWLRQDQG9LVLWRUV%XUHDXDQGWKH6WUDWHJLF$OOLDQFHIRU%XVLQHVV DQG(FRQRPLF5HVHDUFK,QVWLWXWH

 *URZWK,QGLFHV  #  .      )RUWKH0RQWK $YHUDJH RI'HFHPEHU (OHFWULF&XVWRPHUV *DV&XVWRPHUV                               BBBBBBBBBBBBBBBBBBBBBBBBB 6RXUFH&36

     7KHUHPDLQGHURIWKLVSDJHLVLQWHQWLRQDOO\OHIWEODQN 

$

#2#   % $ /   )LVFDO
$YHUDJHQXPEHUELOOHGH[FOXGLQJ6$:6LUULJDWLRQFXVWRPHUV 6RXUFH6$:6

         6HWIRUWKEHORZLVDWDEOHVKRZLQJEXLOGLQJSHUPLWVLVVXHGIRUFRQVWUXFWLRQZLWKLQWKH&LW\DW'HFHPEHU IRUWKH\HDUVLQGLFDWHG   5HVLGHQWLDO 5HVLGHQWLDO  &DOHQGDU 6LQJOH)DPLO\ 0XOWL)DPLO\ 2WKHU 
,QFOXGHVWZRIDPLO\GXSOH[SURMHFWV ,QFOXGHVFRPPHUFLDOEXLOGLQJSHUPLWVFRPPHUFLDODGGLWLRQVLPSURYHPHQWVH[WHQVLRQVDQGFHUWDLQUHVLGHQWLDOLPSURYHPHQWV 6RXUFH&LW\RI6DQ$QWRQLR'HSDUWPHQWRI'HYHORSPHQW6HUYLFHV 

      7KHUHPDLQGHURIWKLVSDJHLVLQWHQWLRQDOO\OHIWEODQN         

$

  %# )  –  )       6HWIRUWKEHORZLQDOSKDEHWLFDORUGHULVWRWDOPXQLFLSDOVDOHVWD[FROOHFWLRQVIRUWKHFDOHQGDU\HDUVLQGLFDWHG        $PDULOOR     1$ $UOLQJWRQ      $XVWLQ      &RUSXV&KULVWL      'DOODV      (O3DVR      )RUW:RUWK      +RXVWRQ      3ODQR      5RXQG5RFN  1$ 1$ 1$  6$1$1721,2      BBBBBBBBBBBBBBBBBBBBBBBBB 6RXUFH6WDWHRI7H[DV&RPSWUROOHU’V2IILFH

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

%DVHGRQ/DERU0DUNHW,QIRUPDWLRQ'HSDUWPHQW7H[DV:RUNIRUFH&RPPLVVLRQ PRGHOEDVHGPHWKRGRORJ\ 

$

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

%DVHGRQ/DERU0DUNHW,QIRUPDWLRQ'HSDUWPHQW7H[DV:RUNIRUFH&RPPLVVLRQ PRGHOEDVHGPHWKRGRORJ\ 

 6DQ$QWRQLR(OHFWULFDQG*DV6\VWHPV   6DQ$QWRQLR(OHFWULFDQG*DV6\VWHPVDUHFRYHUHGLQWKHERG\RIWKLV5HPDUNHWLQJ0HPRUDQGXP  6DQ$QWRQLR:DWHU6\VWHP  1   

 ,Q  WKH &LW\ &RXQFLO FRQVROLGDWHG DOO RI WKH &LW\’V ZDWHUUHODWHG V\VWHPV IXQFWLRQV DJHQFLHV DQG DFWLYLWLHV LQWR RQH DJHQF\  7KLV DFWLRQ ZDV WDNHQ GXH WR WKH P\ULDG RI LVVXHV FRQIURQWLQJ WKH &LW\ UHODWHG WR WKH GHYHORSPHQW DQG SURWHFWLRQ RI LWV ZDWHU UHVRXUFHV  7KH FRQVROLGDWLRQ SURYLGHG WKH &LW\ D VLQJXODU YRLFH RI UHSUHVHQWDWLRQZKHQSURPRWLQJRUGHIHQGLQJWKH&LW\’VJRDOVDQGREMHFWLYHVIRUZDWHUUHVRXUFHSURWHFWLRQSODQQLQJ DQGGHYHORSPHQWZKHQGHDOLQJZLWKORFDOUHJLRQDOVWDWHDQGIHGHUDOZDWHUDXWKRULWLHVDQGRIILFLDOV   )LQDO&LW\&RXQFLODSSURYDOIRUWKHFRQVROLGDWLRQZDVJLYHQRQ$SULOZLWKWKHDSSURYDORI2UGLQDQFH 1R WKH“6\VWHP2UGLQDQFH” ZKLFKFUHDWHGWKH&LW\’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“6$:6 %RDUG”  FXUUHQWO\FRQVLVWLQJRIVHYHQPHPEHUVLQFOXGLQJWKH&LW\’V0D\RUDQGVL[SHUVRQVZKRDUHUHVLGHQWVRIWKH&LW\RU UHVLGHZLWKLQWKH6$:6VHUYLFHDUHD:LWKWKHH[FHSWLRQRIWKH0D\RUDOO6$:6%RDUGPHPEHUVDUHDSSRLQWHGE\ WKH&LW\&RXQFLOIRUIRXU\HDUVWDJJHUHGWHUPVDQGDUHHOLJLEOHIRUUHDSSRLQWPHQWIRURQHDGGLWLRQDOIRXU\HDUWHUP )RXU 6$:6 %RDUG PHPEHUV PXVW EH DSSRLQWHG IURP IRXU GLIIHUHQW TXDGUDQWV LQ WKH &LW\ DQG WZR 6$:6 %RDUG

$

PHPEHUVDUHDSSRLQWHGIURPWKH&LW\’VQRUWKDQGVRXWKVLGHVUHVSHFWLYHO\6$:6%RDUGPHPEHUVKLSVSHFLILFDWLRQV DUHVXEMHFWWRIXWXUHFKDQJHE\&LW\&RXQFLO   :LWKWKHH[FHSWLRQRIIL[LQJUDWHVDQGFKDUJHVIRUVHUYLFHVUHQGHUHGE\6$:6FRQGHPQDWLRQSURFHHGLQJV DQGWKHLVVXDQFHRIGHEWWKH6$:6%RDUGKDVDEVROXWHDQGFRPSOHWHDXWKRULW\WRFRQWUROPDQDJHDQGRSHUDWH6$:6 LQFOXGLQJWKHH[SHQGLWXUHDQGDSSOLFDWLRQRIJURVVUHYHQXHVWKHDXWKRULW\WRPDNHUXOHVDQGUHJXODWLRQVJRYHUQLQJ IXUQLVKLQJVHUYLFHVWRFXVWRPHUVDQGWKHLUVXEVHTXHQWSD\PHQWIRU6$:6’VHUYLFHVDORQJZLWKWKHGLVFRQWLQXDQFHRI VXFKVHUYLFHVXSRQWKHFXVWRPHU’VIDLOXUHWRSD\IRUWKHVDPH7KH6$:6%RDUGWRWKHH[WHQWDXWKRUL]HGE\ODZDQG VXEMHFWWRFHUWDLQYDULRXVH[FHSWLRQVDOVRKDVDXWKRULW\WRPDNHH[WHQVLRQVLPSURYHPHQWVDQGDGGLWLRQVWR6$:6 DQGWRDFTXLUHE\SXUFKDVHRURWKHUZLVHSURSHUWLHVRIHYHU\NLQGLQFRQQHFWLRQWKHUHZLWK  #    

 6$:6SURYLGHVZDWHUDQGZDVWHZDWHUVHUYLFHWRWKHPDMRULW\RIWKHSRSXODWLRQZLWKLQWKHFRUSRUDWHOLPLWV RIWKH&LW\DQG%H[DU&RXQW\ZKLFKWRWDOVDSSUR[LPDWHO\PLOOLRQUHVLGHQWV6$:6HPSOR\VRYHUSHUVRQQHO DQGPDLQWDLQVRYHUPLOHVRIZDWHUDQGVHZHUPDLQV7KHWDEOHVWKDWIROORZVKRZKLVWRULFDOZDWHUFRQVXPSWLRQ DQGZDWHUFRQVXPSWLRQE\FODVVIRUWKHILVFDO\HDUVLQGLFDWHG  1  2  % 3   4       7RWDO'LUHFW5DWH *DOORQV *DOORQV  *DOORQVRI $YHUDJH *DOORQVRI :DWHU 6HZHU I I )LVFDO :DWHU :DWHU :DWHU 3HUFHQW :DVWHZDWHU %DVH 8VDJH %DVH 8VDJH
8QDXGLWHG 3XPSDJHLVWRWDOSRWDEOHZDWHUSURGXFWLRQOHVV$TXLIHU6WRUDJHDQG5HFRYHU\UHFKDUJH 5HSUHVHQWVDPRXQWVELOOHGWRFXVWRPHUV5HVLGHQWLDO&ODVVFXVWRPHUVDUHELOOHGEDVHGRQZDWHUXVDJHGXULQJDFRQVHFXWLYHWKUHHPRQWKELOOLQJ SHULRGIURP1RYHPEHUWKURXJK0DUFK$OORWKHUFXVWRPHUFODVVHVDUHELOOHGIRUZDVWHZDWHUWUHDWPHQWEDVHGRQDFWXDOZDWHUXVDJHGXULQJHDFK PRQWKO\ELOOLQJSHULRG F Rate shown is for 5/8” meters. G 5HSUHVHQWVVWDQGDUG QRQVHDVRQDO XVDJHFKDUJHIRUPRQWKO\UHVLGHQWLDOZDWHUXVDJHRIJDOORQVSHUPRQWK,QFOXGHVZDWHUVXSSO\DQG Edwards Aquifer Authority (“EAA”) fees. H 0LQLPXPVHUYLFHDYDLODELOLW\FKDUJH LQFOXGHVFKDUJHIRUILUVWJDOORQV  I 5HSUHVHQWVXVDJHFKDUJHIRUDUHVLGHQWLDOFXVWRPHUEDVHGRQZLQWHUDYHUDJHZDWHUFRQVXPSWLRQRIJDOORQVSHUPRQWK 6RXUFH6$:6    D E

7KHUHPDLQGHURIWKLVSDJHLVLQWHQWLRQDOO\OHIWEODQN      



$

2  % (  

3   4 

 

 

 











 



:DWHU6DOHVD













5HVLGHQWLDO&ODVV













 





*HQHUDO&ODVV













 



















































 



















:DVWHZDWHU6DOHV

        















5HVLGHQWLDO&ODVV













 





*HQHUDO&ODVV













 





:KROHVDOH&ODVV



















7RWDO:DVWHZDWHU













 





















:KROHVDOH&ODVV ,UULJDWLRQ&ODVV 7RWDO:DWHU 

 &RQVHUYDWLRQ– 5HVLGHQWLDO&ODVVE













5HF\FOHG:DWHU6DOHV













 











 





BBBBBBBBBBBBBBBBBBBB 

8QDXGLWHG :DWHU6XSSO\DQG($$IHHVDUHELOOHGEDVHGRQWKHJDOORQVELOOHGIRUSRWDEOHZDWHUVDOHV E *DOORQVELOOHGIRUFRQVHUYDWLRQDUHLQFOXGHGLQWKHJDOORQVELOOHGIRUSRWDEOHZDWHUVDOHV 6RXUFH6$:6  D

#2##    6$:6LQFOXGHVDOOZDWHUUHVRXUFHVSURSHUWLHVIDFLOLWLHVDQGSODQWVRZQHGRSHUDWHGDQGPDLQWDLQHGE\WKH &LW\UHODWLQJWRVXSSO\VWRUDJHWUHDWPHQWWUDQVPLVVLRQDQGGLVWULEXWLRQRIWUHDWHGSRWDEOHZDWHUDQGFKLOOHGZDWHU (collectively, the “waterworks system”), collection and treatment of wastewater (the “wastewater system”), and treatment and reuse of wastewater (the “water reuse system”) (the waterworks system, the wastewater system, and the water reuse system, collectively, the “System”). The System does not include any “Special Projects”, which are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’ operating revenues are provided by its four core businesses: Water Delivery, Water Supply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he SAWS’ waterworks system, including the former District Special Project (the “DSP”) service area, currently H[WHQGVRYHUDSSUR[LPDWHO\VTXDUHPLOHVPDNLQJLWWKHODUJHVWZDWHUSXUYH\RULQ%H[DU&RXQW\6$:6VHUYHV DSSUR[LPDWHO\RIWKHZDWHUXWLOLW\FXVWRPHUVLQ%H[DU&RXQW\ZKLFKDPRXQWLQFUHDVHVWRDSSUR[LPDWHO\ ZKHQIDFWRULQJWKHFXVWRPHUVRIWKH'63$VRI'HFHPEHU6$:6DQGWKH'63SURYLGHGSRWDEOHZDWHU VHUYLFH WR DSSUR[LPDWHO\  FXVWRPHU FRQQHFWLRQV ZKLFK LQFOXGHV UHVLGHQWLDO FRPPHUFLDO PXOWLIDPLO\

$

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uality (“TCEQ”) (formerly known as the TexaV:DWHU&RPPLVVLRQDQGWKH7H[DV:DWHU4XDOLW\%RDUG ,Q the wastewater system was consolidated with the City’s waterworks and recycling systems to form the System.   6$:6VHUYHVDVXEVWDQWLDOSRUWLRQRIWKHUHVLGHQWVRIWKH&LW\JRYHUQPHQWDOHQWLWLHVDQGRWKHUFXVWRPHUV RXWVLGHWKHFRUSRUDWHOLPLWVRIWKH&LW\$V5HJLRQDO$JHQW6$:6KDVFHUWDLQSUHVFULEHGERXQGDULHVWKDWFXUUHQWO\ FRYHUDQDUHDRIDSSUR[LPDWHO\VTXDUHPLOHV6$:6DOVRFRRUGLQDWHVZLWKWKH&LW\IRUZDVWHZDWHUSODQQLQJIRU the City’s total planning area, extraterritorial jurisdiction (“ETJ”), of approximately 1,107 square miles. The SRSXODWLRQIRUWKLVSODQQLQJDUHDLVDSSUR[LPDWHO\PLOOLRQSHRSOH$VRI'HFHPEHU6$:6SURYLGHG ZDVWHZDWHUVHUYLFHVWRDSSUR[LPDWHO\FXVWRPHUFRQQHFWLRQV   ,QDGGLWLRQWRWKHWUHDWPHQWIDFLOLWLHVRZQHGE\6$:6WKHUHDUHVL[SULYDWHO\RZQHGDQGRSHUDWHGVHZDJH and treatment plants within the City’s ETJ.   7KHZDVWHZDWHUV\VWHPLVFRPSRVHGRIDSSUR[LPDWHO\PLOHVRIPDLQVDQGWKUHHPDMRUWUHDWPHQWSODQWV 'RV5LRV/HRQ&UHHNDQG0HGLR&UHHN$OOWKUHHSODQWVDUHFRQYHQWLRQDODFWLYDWHGVOXGJHIDFLOLWLHV6$:6KROGV 7H[DV3ROOXWDQW'LVFKDUJH(OLPLQDWLRQ6\VWHPZDVWHZDWHUGLVFKDUJHSHUPLWVLVVXHGE\WKH7&(4IRUPLOOLRQ gallons per day (“MGD”) in treatment capacity and 46 MGD in reserve permit capacity. The permitted flows from the wastewater system’s three regional treatment plants represent approximately 98% of the municipal discharge within the City’s ETJ.   The System has applied to the TCEQ to expand its Certificates of Convenience and Necessity (“CCN”) or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the City’s south side, and has been doing so since 2000. The water recycling program is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rvices to governmental and private entities. Two of the facilities, located in the City’s downtown area, provide FKLOOHGZDWHUWRFXVWRPHUV7KH\LQFOXGHYDULRXV&LW\IDFLOLWLHVVXFKDVWKH+HQU\%*RQ]DOH]&RQYHQWLRQ&HQWHU

$

DQGWKH$ODPRGRPHZKLFKconstitute a large percentage of the SAWS’ downtown chilled water annual production UHTXLUHPHQWV,QDGGLWLRQWR&LW\IDFLOLWLHVWKHWZRFHQWUDOSODQWVDOVRSURYLGHFKLOOHGZDWHUVHUYLFHWRDQXPEHURI PDMRUKRWHOVLQWKHGRZQWRZQDUHDLQFOXGLQJWKH*UDQG+\DWW0DUULRWW5LYHUZDONDQG+LOWRQ3DODFLR'HO5LR7KH RWKHUWKUHHWKHUPDOIDFLOLWLHVRZQHGDQGRSHUDWHGE\6$:6DUHORFDWHGDWWKH3RUWDQGSURYLGHFKLOOHGZDWHUWRODUJH LQGXVWULDOFXVWRPHUVWKDWLQFOXGH/RFNKHHG0DUWLQDQG%RHLQJ$HURVSDFH6AWS’ chilled water producing capacity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endangered by the United States Fish & Wildlife Service (the “USFWS”) under the federal Endangered Species Act DQGSURYLGHVEDVHIORZIRUWKH*XDGDOXSH5LYHU:DWHUOHYHOVLQWKH(GZDUGV$TXLIHUDUHDIIHFWHGE\UDLQIDOORUODFN WKHUHRIZDWHUXVDJHUHJLRQZLGHDQGGLVFKDUJHIURPWKHDIRUHPHQWLRQHGVSULQJV2QHXQLTXHDVSHFWRIWKH(GZDUGV $TXLIHULVLWVSUROLILFUHFKDUJHDELOLW\DQGWKHKLVWRULFDOEDODQFHEHWZHHQUHFKDUJHDQGGLVFKDUJHLQWKHIRUPRIZHOO ZLWKGUDZDOVDQGVSULQJGLVFKDUJHV  'XULQJ WKH V LQFUHDVLQJ GHPDQG RQ WKH (GZDUGV $TXLIHU WKUHDWHQHG WR H[FHHG DYHUDJH KLVWRULFDO UHFKDUJHJHQHUDWLQJFRQFHUQVE\WKHDUHDVGHSHQGHQWXSRQVSULQJIORZIRUZDWHUDQGWKHORFDOHFRQRP\$OVRWKH IOXFWXDWLRQVLQ(GZDUGV$TXLIHUOHYHOVWKUHDWHQHGWRMHRSDUGL]HIORZIURP&RPDODQG6DQ0DUFRV6SULQJV6LQFH JURXQGZDWHULQFOXGLQJWKH(GZDUGV$TXLIHULVVXEMHFWWRWKHUXOHRIFDSWXUHLQ7H[DVPHDQLQJIXOPDQDJHPHQWFRXOG QRWEHDFFRPSOLVKHGLQWKHDEVHQFHRIQHZ6WDWHOHJLVODWLRQ  5HJLRQDO SODQQLQJ HIIRUWV WR DGGUHVV WKHVH LVVXHV ZHUH XQGHUWDNHQ LQ WKH PLGV UHVXOWLQJ LQ UHFRPPHQGDWLRQVIRUQHZ6WDWHOHJLVODWLRQIRUPDQDJHPHQWRIWKH(GZDUGV$TXLIHU)DLOXUHWRDGRSWWKLVOHJLVODWLRQ LQWKH7H[DV/HJLVODWLYH6HVVLRQUHVXOWHGLQWKHLQLWLDWLRQRIYDULRXVODZVXLWVDQGUHJXODWRU\HIIRUWVE\UHJLRQDO LQWHUHVWVGHSHQGHQWXSRQVSULQJIORZWRIRUFHOLPLWDWLRQVRQRYHUDOOXVDJHIURPWKH(GZDUGV$TXLIHU,QDGGLWLRQWR WKHOLWLJDWLRQGLVFXVVHGEHORZOLWLJDWLRQZDVLQLWLDWHGLQ6WDWH'LVWULFW&RXUWWRKDYHWKH(GZDUGV$TXLIHUGHFODUHGDQ XQGHUJURXQGULYHUXQGHU6WDWHODZDQGWKHUHIRUHRZQHGE\WKH6WDWH7KLVOLWLJDWLRQZDVXQVXFFHVVIXO,QDGGLWLRQ HIIRUWVZHUHXQGHUWDNHQWRKDYHWKH7H[DV:DWHU&RPPLVVLRQ QRZWKH7&(4 UHJXODWHWKH(GZDUGV$TXLIHU,Q $SULO  WKH 7H[DV :DWHU &RPPLVVLRQ DGRSWHG HPHUJHQF\ UXOHV GHFODULQJ WKH (GZDUGV $TXLIHU WR EH DQ XQGHUJURXQGVWUHDPDQGWKHUHIRUH6WDWHZDWHUVXEMHFWWRUHJXODWLRQE\WKH6WDWH$IWHUILQDODGRSWLRQRISHUPDQHQW rules, litigation was initiated in State court challenging the Texas Water Commission’s determination. The Texas Water Commission’s permanent rules and the Commission’s dHWHUPLQDWLRQ WKDW WKH (GZDUGV $TXLIHU ZDV DQ XQGHUJURXQGVWUHDPDQGWKHUHIRUHVXEMHFWWRUHJXODWLRQE\WKH6WDWHZHUHGHFODUHGLQYDOLGE\WKH6WDWHFRXUWV 

$

7KHYDULRXVOLWLJDWLRQVDQGUHJXODWRU\HIIRUWVWRPDQDJHZLWKGUDZDOVIURPWKH(GZDUGV$TXLIHUUHVXOWHGLQ SDVVDJHRIWKH(GZDUGV$TXLIHU$XWKRULW\$FWLQDQGLWVDPHQGPHQWLQWRDOORZLWVLPSOHPHQWDWLRQ7KH Edwards Aquifer Authority (“EAA”) began operation on July 1, 1996, with a goal of implementing State regulatory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not materially adversely affect revenues or SAWS’ ability to supply water to its customers for primary needs.  ,QWKH7H[DV/HJLVODWXUHSDVVHG6HQDWH%LOOHVWDEOLVKLQJDFDSRQDQQXDOSXPSLQJIURPWKH(GZDUGV $TXLIHURIDFUHIHHWDQGSODFLQJUHVWULFWLRQVLQWR6WDWHVWDWXWHUHJDUGLQJVXSSO\DYDLODELOLW\GXULQJGURXJKW SHULRGVWKXVPDNLQJWKHVHUHVWULFWLRQV6WDWHODZ6$:6FXUUHQWO\KDVDFFHVVWRDSSUR[LPDWHO\RIWKH DFUHIHHWDYDLODEOH,QDGGLWLRQWRVXSSRUWRQJRLQJHIIRUWVWRLGHQWLI\DQGHYDOXDWHPHWKRGVWRSURWHFWWKUHDWHQHGDQG HQGDQJHUHGVSHFLHVWKH7H[DV/HJLVODWXUHSUHVFULEHGLQGHWDLODQ(GZDUGV$TXLIHU5HFRYHU\,PSOHPHQWDWLRQ3URJUDP (“EARIP”) for the(GZDUGV$TXLIHUUHJLRQ7KH($5,3LVEHLQJXQGHUWDNHQLQFRRUGLQDWLRQZLWK86):6DQGLV LQWHQGHGWRKHOSWKHUHJLRQPHHWWKHQHHGVRIHQGDQJHUHGVSHFLHVZKLOHUHVSHFWLQJDQGSURWHFWLQJWKHOHJDOULJKWVRI ZDWHUXVHUV7KHSURJUDPFRQVLVWVRIDIDFLOLWDWHGFRQVHQVXVEDVHGSURFHVVLQYROYLQJDEURDGFURVVVHFWLRQRIUHJLRQDO VWDNHKROGHUV2Q1RYHPEHUWKH($5,3VWHHULQJFRPPLWWHHDQGVWDNHKROGHUVHQGRUVHGWKHILQDOGUDIWRID Habitat Conservation Plan (“HCP”), an Implementing Agreement, and a FuQGLQJDQG0DQDJHPHQW$JUHHPHQW7KH VWDNHKROGHUVDQGWKHPHPEHUVRIWKHVWHHULQJFRPPLWWHHUHDFKHGEURDGFRQVHQVXVRQWKHIXQGDPHQWDOHOHPHQWVDQG DVVRFLDWHGGHWDLOVRIDPXOWL\HDUDGDSWLYHPDQDJHPHQWSODQZKLFKIRUPHGWKHIRXQGDWLRQRIWKH+&3LQVXSSRUWRI WKHGHVLUHG,QFLGHQWDO7DNH3HUPLWZLWKDWHUPRI\HDUV  7KH&LW\DFWLQJE\DQGWKURXJK6$:6DORQJZLWKWKH($$WKH&LW\RI1HZ%UDXQIHOVWKH&LW\RI6DQ 0DUFRVDQG7H[DV6WDWH8QLYHUVLW\–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oard (“MSRB”) through its Electronic Municipal Market Access (“EMMA”) system.  .'  5    

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permitted water rights are declared by the EAA Board of Directors and impact SAWS’ access to its permitted Edwards Aquifer water rights, without input or action by the City or SAWS. The EAA’s drought triggers and requisite rHGXFWLRQ LQSXPSLQJIRUWKH6DQ$QWRQLRDQG8YDOGH3RROVRIWKH(GZDUGV$TXLIHUDUHLQGLFDWHGLQWKHIROORZLQJWDEOHV7KH HQWLUHW\of SAWS’ Edwards Aquifer water rights LVVXEMHFWWRWKHUHVWULFWLRQVDVVRFLDWHGZLWKWKH6DQ$QWRQLR3RRO    7KHUHPDLQGHURIWKLVSDJHLVLQWHQWLRQDOO\OHIWEODQN   

$

6$1$1721,2322/ &RPDO 6DQ0DUFRV  6SULQJV)ORZ  6SULQJV)ORZ      1$  1$  1$

,QGH[:HOO -/HYHO     

&ULWLFDO3HULRG 6WDJH , ,, ,,, ,9 9

:LWKGUDZDO 5HGXFWLRQ       

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

'XH WR WKH DERYHDYHUDJH UDLQIDOO LQ  WKH ($$ KDV OLIWHG 6WDJH , UHVWULFWLRQV HQGLQJ FULWLFDO SHULRG PDQDJHPHQWIRUXVHUVZLWKLQWKH6DQ$QWRQLR3RRODQGWKH8YDOGH3RRO7KHFKDQJHZDVHIIHFWLYHZLWKLQWKH8YDOGH 3RRORQ$XJXVWDQGWKH6DQ$QWRQLR3RRORQ1RYHPEHU)RUDGGLWLRQDOLQIRUPDWLRQRQWKHYDULRXV OHYHOV RI GURXJKW UHVWULFWLRQV LPSRVHG E\ WKH ($$ DQG FXUUHQW OHYHO RI WKH (GZDUGV $TXLIHU VHH ZZZHGZDUGVDTXLIHURUJ 

City’s Edwards Aquifer Management Plan 

,QDGGLWLRQDQGVHSDUDWHDQGDSDUWIURPthe EAA’s rules governing withdrawal of Edwards Aquifer water during drought, the City has established a proactive Aquifer Management Plan to manage the region’s water resources GXULQJSHULRGVRIGURXJKW(VWDEOLVKHGE\&LW\RUGLQDQFHWKH$TXLIHU0DQDJHPHQW3ODQDOVRUHVWULFWVZDWHUXVHEDVHG RQVSHFLILFOHYHOVRIWKH(GZDUGV$TXLIHU7KH&LW\DSSURYHGWKHIROORZLQJ(GZDUGV$TXLIHUOHYHOWULJJHUVLQ DQGXSGDWHGFHUWDLQUHYLVLRQVWRWKHZDWHUXVHUHVWULFWLRQVLQ 


6WDJH2QH–6WDJH2QHUHVWULFWLRQVEHJLQZKHQWKHGD\UROOLQJDYHUDJHRIWKH(GZDUGV$TXLIHUOHYHOGURSV WRIHHWPHDQVHDOHYHODWWKHPRQLWRUHGZHOO -,QGH[:HOO 6$:6FXVWRPHUVDUHOLPLWHGWRRQHGD\SHUZHHN ODQGVFDSHZDWHULQJZLWKDQLUULJation system or sprinkler based on the last number of the customer’s street address DQGDUHRQO\DOORZHGWRZDWHUEHIRUHDPRUDIWHUSP

$

6WDJH7ZR–6WDJH7ZRUHVWULFWLRQVEHJLQ ZKHQWKHGD\UROOLQJDYHUDJHRIWKH(GZDUGV$TXLIHUOHYHO GURSVWRIHHWPHDQVHDOHYHODWWKHPRQLWRUHGZHOO -,QGH[:HOO 6$:6FXVWRPHUVDUHOLPLWHGWRRQHGD\ per week landscape watering with an irrigation system or sprinkler based on the last number of the customer’s street DGGUHVVDQGDUHRQO\DOORZHGWRZDWHUIURPDPWRDPDQGIURPSPWRSPRQWKHLUDVVLJQHGGD\ 

6WDJH7KUHH–6WDJH7KUHHUHVWULFWLRQVPD\EHJLQZKHQWKHGD\UROOLQJDYHUDJHRIWKH(GZDUGV$TXLIHU OHYHOGURSVWRIHHWPHDQVHDOHYHODWWKHPRQLWRUHGZHOO -,QGH[:HOO DQGWKHWRWDOVXSSO\RIZDWHUWR6$:6 IURPWKH(GZDUGV$TXLIHUDQGRWKHUDYDLODEOHVRXUFHVLVLQVXIILFLHQWWRPHHWFXVWRPHUGHPDQGZKLOHFRPSO\LQJZLWK DSSOLFDEOHUHJXODWLRQVJRYHUQLQJZDWHUVXSSO\ZLWKGUDZDOV6$:6FXVWRPHUVDUHOLPLWHGWRODQGVFDSHZDWHULQJZLWK an irrigation system or sprinkler once every other week based on the last number of the customer’s street address and DUHRQO\DOORZHGWRZDWHUIURPDPWRDPDQGIURPSPWRSPRQWKHLUDVVLJQHGGD\ 

6WDJH)RXU–6WDJH)RXUUHVWULFWLRQVPD\EHGHFODUHGLIWKHWRWDOVXSSO\RIZDWHUIURPWKH(GZDUGV$TXLIHU DQGRWKHUDYDLODEOHZDWHUVRXUFHVWR6$:6LVLQVXIILFLHQWWRPHHWFXVWRPHUGHPDQGZKLOHFRPSO\LQJZLWKDSSOLFDEOH UHJXODWLRQVJRYHUQLQJZDWHUVXSSO\ZLWKGUDZDOV6WDJH)RXUUHVWULFWLRQVPD\EHGHFODUHGDWWKHGLVFUHWLRQRIWKH&LW\ 0DQDJHUXSRQFRPSOHWLRQRIDGD\PRQLWRULQJSHULRGIROORZLQJ6WDJH7KUHHGHFODUDWLRQ6$:6FXVWRPHUVDUH OLPLWHGWRODQGVFDSHZDWHULQJZLWKDQLUULJDWLRQV\VWHPRUVSULQNOHURQFHHYHU\RWKHUZHHNEDVHGRQWKHODVWQXPEHU of the customer’s street address and are only allowed to water from 7 a.m. to 11 a.m. and from 7 p.m. to 11 p.m. on WKHLUDVVLJQHGGD\$OVRGXULQJ6WDJH)RXUDGURXJKWVXUFKDUJHLVDVVHVVHGRQDOODFFRXQWVIRUZDWHUXVHGRUDVVXPHG WREHXVHGIRUODQGVFDSHLUULJDWLRQ7KHVXUFKDUJHLVWKHKLJKHVWYROXPHWULFUDWHDVVHVVHGE\6$:6DQGLVDVVHVVHGRQ DQ\UHVLGHQWLDODQGLUULJDWLRQDFFRXQWZLWKPRQWKO\ZDWHUXVDJHH[FHHGLQJDQGJDOORQVUHVSHFWLYHO\ 7KHVXUFKDUJHUDWHLVDVVHVVHGLQDGGLWLRQWRWKHUHJXODUZDWHUDQGZDVWHZDWHUUDWHV 

'XHWRYDU\LQJZHDWKHUSDWWHUQVWKH&LW\KDVEHHQLQDQGRXWRIGURXJKWUHVWULFWLRQVEDVHGRQWKHIOXFWXDWLQJ PHDQVHDOHYHORIWKH(GZDUGV$TXLIHUDWWKH-PRQLWRULQJZHOODVZHOODVFKDQJHVLQVSULQJIORZ$VRIWKHGDWH KHUHRIDOOGURXJKWUHVWULFWLRQVKDYHEHHQOLIWHG
      7#  ( 5  2  In an effort to achieve significant diversification of the City’s water supply, the SAWS Board, on January   VROLFLWHG UHTXHVWV IRU FRPSHWLWLYH VHDOHG SURSRVDOV IRU WKH SURYLVLRQ DQG GHOLYHU\ RI DOWHUQDWLYH ZDWHU VXSSOLHVIRUWKHSXUpose of meeting the SAWS system’s water supply needs (the “Solicitation”). In response to the 6ROLFLWDWLRQWKH6$:6%RDUGUHFHLYHGQLQHUHVSRQVHVIURPZKLFKWKUHHILQDOLVWVZHUHVHOHFWHGDQGUHYLHZHGSULRUWR GHWHUPLQLQJ WKDW D MRLQWYHQWXUH SURSRVDO VXFK SURSRVHU $EHQJRD 9LVWD 5LGJH //& KHUHDIWHU UHIHUUHG WR DV “Abengoa VR”) to deliver Carrizo and Simsboro aquifer water presented the most advantageous possibility for the &LW\WRREWDLQDQDOWHUQDWLYH ZDWHUVRXUFH2Q-XO\WKH6$:6%RDUGIRUPDOO\VHOHFWHGWKHZDWHUVXSSO\ SURSRVDO RI $EHQJRD 95 DV WKH PRVW DGYDQWDJHRXV WR WKH 6$:6 V\VWHP VXEMHFW WR QHJRWLDWLRQ RI DQ DFFHSWDEOH FRQWUDFWDQG&LW\&RXQFLOVXSSRUW 2Q6HSWHPEHUDQG2FWREHUWKH6$:6%RDUGDGRSWHGUHVROXWLRQV DQGRQ2FWREHU  WKH &LW\ &RXQFLO XQDQLPRXVO\ DGRSWHG DQ RUGLQDQFH DSSURYLQJ WKH H[HFXWLRQ RI D :DWHU 7UDQVPLVVLRQ DQG Purchase Agreement (the “Agreement”) between the City, acting by and through SAWS, and Abengoa VR (who is LQGLUHFWO\RZQHGE\$EHQJRD6$DFRPSDQ\RUJDQL]HGDQGH[LVWLQJXQGHUWKHODZVRIWKH.LQJGRPRI6SDLQDQG referred to herein as the “Abengoa Parent”), pursuant to which Abengoa VR has committed to make available to 6$:6DQG6$:6KDVDJUHHGWRSD\IRUXSWRDFUHIHet of potable water (“Project Water”) per year for an LQLWLDOSHULRGRI\HDUVSOXVDOLPLWHG \HDU H[WHQVLRQSHULRGXQGHUFHUWDLQHYHQWV KHUHLQDIWHUUHIHUUHGWRDVWKH “operational” phase). To produce and deliver the Project Water, Abengoa VR willGHYHORSZHOOILHOGVWRZLWKGUDZ ZDWHUIURPWKH&DUUL]RDQG6LPVERURDTXLIHUVLQ%XUOHVRQ&RXQW\7H[DVSXUVXDQWWRFXUUHQWO\KHOGORQJWHUPOHDVHV ZLWKODQGRZQHUVDQGFRQVWUXFW RUFDXVHWREHFRQVWUXFWHG DPLOHSLSHOLQHIURPWKLVZHOOILHOGWRQRUWKHUQ%H[DU County (the well fields and the pipeline, together, the “Project”). The pipeline will be connected to the SAWS distribution system at this delivery point in northern Bexar County (the “Connection Point”).  7KH$JUHHPHQWLVVHSDUDWHGLQWRWKUHHdistinct phases. The “development” phase commenced on November ZKLFKZDVWKHGDWHRIFRPSOHWHH[HFXWLRQDQGGHOLYHU\RIWKH$JUHHPHQWDQGLVVFKHGXOHGWRODVWEHWZHHQ 18 and 30 months. The “development” phase concludes upon satisfaction of certDLQFRQWUDFWXDOUHTXLUHPHQWVWKH PRVWVLJQLILFDQWRIZKLFKLVZKHQ$EHQJRD95REWDLQVFRQVWUXFWLRQDQGRSHUDWLRQDOSHULRGILQDQFLQJIRUWKH3URMHFW

$

These events are referred to as “financial closure” and its occurrence results in the conclusion of the “development” phase and commencement of the “construction” phase of the Project by Abengoa VR. During the “construction” SKDVHRIWKH3URMHFW6$:6ZLOODOVREHJLQFRQVWUXFWLRQRILPSURYHPHQWVWRWKH6$:6V\VWHPQHFHVVDU\WRDFFHSW DQG LQWHJUDWH WKH 3URMHFW :DWHU DW DQ DQWLFLSDWHG FDSLWDO FRVW WR 6$:6 RI DSSUR[LPDWHO\  PLOOLRQ  7KLV “construction” phase is scheduled to last 42 months and its conclusion will result in the commencement of the aforementioned 30 year “operational” phase, during which periRG6$:6LVREOLJDWHGWRSD\IRU3URMHFW:DWHU XSWR DFUHIHHWDQQXDOO\ PDGHDYDLODEOHWRLWE\$EHQJRD95DWWKH&RQQHFWLRQ3RLQW During the “development” phase, SAWS has retained the right to terminate the Agreement for its FRQYHQLHQFHVXEMHFWWRLWVSD\PHQWRIDWHUPLQDWLRQIHHWR$EHQJRD95 GHWHUPLQHGEDVHGRQWKHFRVWVLQFXUUHGE\ Abengoa VR pursuant to the Agreement from commencement of the “development” phase to the date of termination, VXFKWHUPLQDWLRQIHHEHLQJFDSSHGDWPLOOLRQ . After “financial closure”, SAWS has also retained the right to WHUPLQDWHWKH$JUHHPHQWE\SXUFKDVLQJWKH3URMHFWIRUWKHDJJUHJDWHDPRXQWRIWKHRXWVWDQGLQJ3URMHFWGHEWFRQWUDFW breakage costs and return of and on equity contributions by Abengoa VR’s SULQFLSDOV QRFDSLVLPSRVHGXSRQVXFK amount as exists if the Agreement is terminated during the “development” phase). At the end of the “operational”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he execution of the Agreement represents a significant diversification of the City’s water source, as SAWS SURMHFWVWKDW3URMHFW:DWHULIGHOLYHUHGDWWKHPD[LPXPDPRXQW ZKLFKLVWKHH[SHFWDWLRQRIERWK6$:6DQG$EHQJRD VR), will account for approximately 20% of the SAWS system’s current annual usage.  On November 25, 2015, national and international media reported Abengoa Parent’s commencement of pre LQVROYHQF\ SURFHHGLQJV LQ 6SDLQ LQGLFDWLQJ WKH EHJLQQLQJ RI DQ DSSUR[LPDWHO\ IRXUPRQWK SHULRG GXULQJ ZKLFK Abengoa Parent negotiated with its creditors in an effort to reach an accord to guarantee Abengoa Parent’s continued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

$

,QHDUO\6$:6EHFDPHDZDUHWKDW$EHQJRDZDVVROLFLWLQJSURSRVDOVWRVHOOXSWRRIWKHHTXLW\ LQWHUHVWLQ$EHQJRD958QGHUWKHWHUPVRIWKH $JUHHPHQW6$:6KDVWKHULJKWWRFRQVHQWWRDQ\DVVLJQPHQWRU change of control of Abengoa VR in SAWS’ solHDQGDEVROXWHGLVFUHWLRQ2Q0DUFK6$:6UHFHLYHGQRWLFH that Garney P3 LLC (“Garney”, who is wholly owned by Garney Companies, Inc. and referred to herein as “Garney Company”, who is wholly owned by Garney Holding Company, and referred to herein as “Garney Parent”; Garney, Garney Company and Garney Parent are collectively referred to herein as the “Garney Parties”) had reached agreement with Abengoa Parent, Abengoa Water USA LLC (“Abengoa Water”) and Abengoa VR (Abengoa Parent, Abengoa :DWHUDQGAbengoa VR collectively referred to herein as the “Abengoa Parties”), for the sale and purchase of an 80% equity interest in Abengoa VR (such agreement, the “Equity Purchase Agreement”; such transferred interest in Abengoa VR, the “Transferred Project Company Interest”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n May 17, 2016, SAWS exercised its contractual right to fix the “Capital and Raw Groundwater Unit Price” XQGHUWKH$JUHHPHQWEDVHGRQWKHPHWKRGRORJ\SURYLGHGIRUWKHUHLQ7KLVDFWLRQUHGXFHGWKHSULFHRIWKH3URMHFW :DWHUFRPSRQHQWRI6$:6DQQXDOSD\PHQWUHTXLUHPHQWIURPWKHSRVVLEOHPD[LPXPDPRXQWRISHUDFUHIRRW WRSHUDFUHIRRWZKLFKZLOOUHPDLQIL[HGIRUWKHHQWLUH\HDUWHUP DQGDQ\H[WHQVLRQRIWKDWWHUP RIWKH $JUHHPHQW7KLVDFWLRQUHVXOWVLQVDYLQJVWR6$:6RIPRUHWKDQPLOOLRQSHU\HDUDQGPRUHWKDQPLOOLRQ RYHUWKHPD[LPXPWKDWFRXOGKDYHEHHQFKDUJHGXQGHUWKH\HDUWHUPRIWKH$JUHHPHQW 2Q 0D\   WKH 6$:6 %RDUG RI 7UXVWHHV DSSURYHG DQ $PHQGPHnt to the Agreement (the “2016 Amendment”) which includes approval of the transfer to Garney of the Transferred Project Company Interest and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n December 18, 2015, Metropolitan Water Company, L.P. (“Met Water”) filed a lawsuit in Travis County 'LVWULFW&RXUWVW-XGLFLDO'LVWULFWVW\OHG0HWURSROLWDQ:DWHU&RPSDQ\/3Y%OXH:DWHU6\VWHPV/3%OXH :DWHU5HJLRQDO6XSSO\3URMHFW/3%OXH:DWHU9LVWD5LGJH//&$EHQJRD9LVWD5LGJH//&DQG:LOPLQJWRQ7UXVW 1DWLRQDO$VVRFLDWLRQ&DXVH1R'*1005774 (“Lawsuit”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be finally resolved to SAWS’ satisfaction prior to “financial closure”, as described above.  

2     

6$:6VXSSOLHVUHXVHZDWHUWR&367KHUHYHQXHVGHULYHGIURPVXFKDJUHHPHQWKDYHEHHQUHVWULFWHGLQXVH WRRQO\UHXVHDFWLYLWLHVDQGDUHH[FOXGHGIURPWKHFDOFXODWLRQRI6$:6JURVVUHYHQXHVDQGDUHQRWLQFOXGHGLQDQ\ transfers to the City’s General Fund. Revenues derived from this agreement are approximately $3.2 million each year.  6$:6KDVFRQVWUXFWHGDGLUHFWUHXVHRUUHF\FOHGZDWHUV\VWHPWKDWSURYLGHVQRQSRWDEOHZDWHUWRYDULRXV FXVWRPHUV QRZ XVLQJ (GZDUGV $TXLIHU ZDWHU  7KH 5HXVH 3URJUDP VHUYHV JROI FRXUVHV XQLYHUVLWLHV SDUNV DQG FRPPHUFLDODQGLQGXVWULDOFXVWRPHUVWKURXJKRXWWKH&LW\5HYHQXHIURPUHF\FOHGZDWHUVDOHVDUHUHFRUGHGDVQRUPDO UHYHQXHRI6$:6DQGGRQRWKDYHWKHUHVWULFWLRQVRIWKHUHXVHDJUHHPHQWZLWK&36

$

#'    

,Q0DUFK6$:6ZDVRUDOO\QRWLILHGE\5HJLRQRIWKH8QLWHG6WDWHV(QYLURQPHQWDO3URWHFWLRQ$JHQF\ (the “EPA”) of alleged failures to comply with the Clean Water Act dueWRWKHRFFXUUHQFHRIVDQLWDU\VHZHURYHUIORZV (“SSOs”). The EPA subsequently referred the matter to the DOJ for enforcement action. SAWS engaged in settlement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

$  ")  % 2 *  *  #%  0  %H[DU0HWZDVFUHDWHGE\WKHWK7H[DV/HJLVODWXUHLQWRVHUYHDQWLFLSDWHGJURZWKLQ%H[DU&RXQW\ )URP DQ LQLWLDO DFFRXQW EDVH RI  SULPDULO\ UHVLGHQWLDO DFFRXQWV LW JUHZ WR PRUH WKDQ  UHVLGHQWLDO DQG FRPPHUFLDO DFFRXQWV VHUYHG LQ  2YHU VHYHUDO \HDUV UHSHDWHG FXVWRPHU FRPSODLQWV DERXW LQDGHTXDWH VHUYLFH DOOHJHGPLVPDQDJHPHQWDQGH[FHVVLYHUDWHVUHVXOWHGLQUHSHDWHGOHJLVODWLYHLQWHUYHQWLRQUHJDUGLQJLWVPDQDJHPHQW DQGRSHUDWLRQVWKDt culminated in the passage of Senate Bill 341 (“SB 341”) by the 82nd Texas Legislature in 2011. 6%HVWDEOLVKHGVHYHUDONH\PHDVXUHVLQFOXGLQJWKHLPPHGLDWHPRQLWRULQJDQGUHYLHZRI%H[DU0HWRSHUDWLRQVE\ WKH7&(47KHSULPDU\FRPSRQHQWRI 6%KRwever, required the conduct of an election (the “Election”) by %H[DU0HWUDWHSD\HUVWRYRWHRQWKHGLVVROXWLRQRI%H[DU0HWDQGFRQVROLGDWLRQZLWK6$:6ZKLFK(OHFWLRQZDVKHOG RQ1RYHPEHU$WWKLV(OHFWLRQ%H[DU0HWUDWHSD\HUVYRWHGLQIDYRURIGLVVROXWLRQ YRWHVIRUYHUVXV YRWHVDJDLQVW 5HVXOWDQWIURPWKHHQUROOPHQWRI6%DQGWKHVXEVHTXHQWFRQGXFWRIWKH(OHFWLRQWKH&LW\ DFWLQJE\DQGWKURXJK6$:6DVVXPHGWKH%H[DU0HWZDWHUZRUNVV\VWHPRQ-DQXDU\DQG%H[DU0HWDVDQ H[LVWLQJDQGRSHUDWLQJHQWLW\ZDVVXEVHTXHQWO\GLVVROYHG  7RDFFRPPRGDWHWKHDVVXPSWLRQRIWKHIRUPHU%H[DU0HWZDWHUZRUNVV\VWHPWKH&LW\E\RUGLQDQFHRIWKH City Council, created a “Special Project”, as authorized by SB 341 and pursuant to City ordinDQFHVDXWKRUL]LQJWKHQ RXWVWDQGLQJ 6HQLRU /LHQ 2EOLJDWLRQV ZKHUH WKDW ZDWHUZRUNV V\VWHP UHVLGHG IURP WKH WLPH RI DVVXPSWLRQ DV D VHJUHJDWHG FRPSRQHQW XQLW RI 6$:6 XQWLO WKH RFFXUUHQFH RI RSHUDWLRQDO LQWHJUDWLRQ ZLWKLQ 6$:6  7KH 6SHFLDO 3URMHFWLVUHIHUUHd to herein as the “District Special Project” or the “DSP”; the former BexarMet waterworks system assumed by the City and held in the DSP is referred to as the “DSP System”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of and payable from the DSP System revenues (the “DSP Obligations”), with certain proceeds of the City of San $QWRQLR7H[DV:DWHU6\VWHP-XQLRU/LHQ5HYHQXH5HIXQGLQJ%RQGV6HULHV$ 1R5HVHUYH)XQG DQG&LW\RI 6DQ$QWRQLR7H[DV:DWHU6\VWHP-XQLRU/LHQ5HYHQXH5HIXQGLQJ%RQGV7D[DEOH6HULHV% 1R5HVHUYH)XQG  ,Q DGGLWLRQ 6$:6 XVHG SURFHHGV IURP LWV FRPPHUFLDO SDSHU SURJUDP VXSSRUWHG E\ 6$:6 UHYHQXHV WR UHWLUH DQ DGGLWLRQDOLQVKRUWWHUPYDULDEOHUDWHLQGHEWHGQHVVVHFXUHGE\DOLHQRQDQGSOHGJHRIDQGSD\DEOHIURP FHUWDLQ'636\VWHPUHYHQXHV7KHUHYHQXHVRIWKH'636\VWHPDUHQRORQJHUVXEMHFWWRDQ\OLHQRUSOHGJHDQG6$:6

$

therefore, has terminated the DSP’s existence (authorization for which has been provided by both the Board and the &LW\&RXQFLO   )RUDGGLWLRQDOLQIRUPDWLRQRQWKH'636\VWHPVHHWKHRIILFLDOVWDWHPHQWIRUWKH&,7<2)6$1$1721,2 7(;$6 :$7(5 6<67(0 -81,25 /,(1 5(9(18( 5()81',1* %21'6 6(5,(6 $ 12 5(6(59( )81'  – ,17(*5$7,21 2) )250(5 %(;$50(7 6<67(0 81'(5 6%  ILOHG ZLWK WKH 0XQLFLSDO 6HFXULWLHV5XOHPDking Board (“MSRB”) through its Electronic Municipal Market Access (“EMMA”) system.  3OHDVH UHIHU WR “7DEOH  – Comparison of Selected Sources of Revenues” in the Official Statement IRU historical transfers from SAWS to the City’s General Fund. 

#2##     *( 3*    4  





1HW





*URVV

2SHUDWLQJ

$YDLODEOH

5HYHQXH%RQG'HEW6HUYLFHD

E

F

G

0D[LPXP$QQXDO'HEW6HUYLFH5HTXLUHPHQWV 7RWDO

&RYHUDJH

H

'HEW 

 &RYHUDJH

6HQLRU/LHQ H

'HEW 

 &RYHUDJHI


([SHQVHV 

5HYHQXH

3ULQFLSDO

,QWHUHVW 

7RWDO

















































































































































































































































BBBBBBBBBBBBBBBBBBBB 

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

 7KH$LUSRUW6\VWHP      The San Antonio International Airport (the “Airport” or “SAT”), located on a 2,600DFUHVLWHWKDWLVDGMDFHQW to Loop 410 freeway and U.S. Highway 281, is nine miles north of the City’s downtown business district. The Airport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

$

2UODQGR6DQIRUG1HZDLUVHUYLFHWKDWVWDUWHGLQLQFOXGHV)URQWLHUWRIRXUPDUNHWV$WODQWD'HQYHU/DV9HJDV DQG3KLODGHOSKLD6RXWKZHVWWR.DQVDV&LW\DQGDGGHGIUHTXHQF\WR+RXVWRQ+REE\   The Airport is classified as a medium hub facility by the FAA. A “medium hub facility” is defined as a IDFLOLW\WKDWHQSODQHVEHWZHHQDQGRIDOOSDVVHQJHUVHQSODQHGRQFHUWLILFDWHGURXWHDLUFDUULHUVLQDOO VHUYLFHVLQWKHVWDWHVWKH'LVWULFWRI&ROXPELDDQGRWKHUGHVLJQDWHGWHUULWRULDOSRVVHVVLRQVRIWKH8QLWHG6WDWHV $FFRUGLQJ WR $LUSRUWV &RXQFLO ,QWHUQDWLRQDO – North America (“ACINA”), an airport industry group, the Airport UDQNHGUGbased on preliminary total U.S. airport’s passenger traffic for calendar year 2013. For the calendar year HQGHG 'HFHPEHU   WKH $LUSRUW HQSODQHG DSSUR[LPDWHO\  PLOOLRQ SDVVHQJHUV  $LUSRUW PDQDJHPHQW KDV GHWHUPLQHGWKDWDSSUR[LPDWHO\% of the Airport’s domestic passenger traffic is origination and destination in nature, ZKLFKLVLPSRUWDQWEHFDXVHLWGHPRQVWUDWHVVWURQJWUDYHOWRDQGIURPWKH&LW\LQGHSHQdent from any one airline’s hub VWUDWHJLHV$YDULHW\RIVHUYLFHVLVDYDLODEOHWRWKHWUDYHOLQJSXEOLFIURPDSSUR[LPDWHO\FRPPHUFLDOEXVLQHVVHV ZKLFK OHDVH IDFLOLWLHV DW WKH $LUSRUW DQG 6WLQVRQ 0XQLFLSDl Airport (“Stinson” and, together with the Airport, the “Airport System”).   The City updated the Master Plan (“Vision 2050”) for the Airport, which was approved by City Council on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tinson, located on 300 acres approximately 5.2 miles southeast of the City’s downtown business district, ZDV HVWDEOLVKHG LQ  DQG LV RQH RI the country’s first municipallyRZQHG DLUSRUWV  ,W LV WKH VHFRQG ROGHVW FRQWLQXRXVO\RSHUDWLQJDLrport in the U.S. and is the FAA’s designated general aviation reliever airport to the Airport. 7KH $LUSRUW 0DVWHU3ODQ IRU6WLQVRQ ZDV XSGDWHG LQ 0D\  WR HVWDEOLVK D ORQJ UDQJH GHYHORSPHQW VWUDWHJ\ RU “blueprint” for the sustained, and fiscally respo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–FY 2020) Capital Improvement Plan (the “CIP”) totals approximately PLOOLRQZKLFKLVFRPSULVHGRIFHUWDLQSURMHFWVLQFOXGLQJWKHGHVLJQDQGFRQVWUXFWLRQRIDFRQVROLGDWHGUHQWDOFDU IDFLOLW\DLUILHOGLPSURYHPHQWVODQGDFTXLVLWLRQUHVLGHQWLDODFRXVWLFDOWUHDWPHQWURDGLPSURYHPHQWVDLUFUDIWDSURQ H[SDQVLRQDQGFDUJRLPSURYHPHQWV   7KH&,3FRQVLVWVRIWKHIROORZLQJ   7HUPLQDO)DFLOLWLHV x 7HUPLQDO$5HQRYDWLRQVDQG5HIXUELVKPHQWV3KDVH,,7KLVSURMHFWLVIRUGHVLJQDQGFRQVWUXFWLRQIRU WKH H[SDQVLRQ RI WKH FXVWRPV IDFLOLW\ LQ 7HUPLQDO $ ZKLFK ZLOO EH FRQVWUXFWHG LQ SKDVHV DORQJ ZLWK DGGUHVVLQJEXLOGLQJLQIUDVWUXFWXUHQRWFDSWXUHGLQWKHILUVWSKDVH

$

x x  

   

76$$GYDQFHG 6XUYHLOODQFH 3URJUDP  7KLV SURMHFW SURYLGHV JUHDWHU VXUYHLOODQFH RI WKH YDULRXV 7HUPLQDOORFDWLRQVWRHQKDQFHVHFXULW\DLGLQWKHVSHHG\UHVROXWLRQRIFODLPVDQGDVVLVWLQWKHUHVROXWLRQ RIODZHQIRUFHPHQWLVVXHV 7HUPLQDO $ 6HFXULW\ &KHFNSRLQW ([SDQVLRQ  7KLV SURMHFW GHVLJQV DQG FRQVWUXFWV WKH H[SDQVLRQ RI 7HUPLQDO $ 6HFXULW\ &KHFNSRLQW IRU DGGLWLRQDO VHFXULW\ OLQHV DQG SURYLGHV D FRQQHFWRU EHWZHHQ 7HUPLQDOV$DQG%WRLPSURYHFKHFNSRLQWFRQJHVWLRQ

$LUILHOG,PSURYHPHQWV x 7HUPLQDO$UHD5HFRQVWUXFWLRQ3KDVHGWRPLQLPL]HFRQVWUXFWLRQLPSDFWVRQDLUSRUWRSHUDWLRQV3DFNDJH ,SURYLGHVWKHUHFRQVWUXFWLRQRIWKHVRXWKHDVWHUQVHFWLRQRI7D[LZD\*IURP5XQZD\WR7D[LZD\ $3DFNDJH,,SURYLGHVDUHFRQVWUXFWLRQRI7D[LZD\*DWLQWHUVHFWLRQVRI7D[LZD\1DQG/DORQJZLWK WKH6RXWK,QQHU7D[LODQHSDUDOOHOWR7HUPLQDO$ x 3HULPHWHU 5RDG 5HFRQVWUXFWLRQ  7KLV SURMHFW SURYLGHV IRU WKH GHVLJQ DQG SKDVHG UHFRQVWUXFWLRQ RI FULWLFDODUHDVRIWKHSHULPHWHUURDG $FRXVWLFDO7UHDWPHQW3URJUDP x $FRXVWLFDO3URJUDP&RQWLQXDWLRQRIWKH5HVLGHQWLDO$FRXVWLFDO7UHDWPHQW3URJUDP 2WKHU3URMHFWV x &RQVROLGDWHG 5HQWDO &DU )DFLOLW\  7KLV SURMHFW SURYLGHV D FRQVROLGDWHG UHQWDO FDU IDFLOLW\ ZKLFK FHQWUDOL]HV$LUSRUWUHQWDOFDURSHUDWRUVLQWRDVLQJOHIDFLOLW\ x 6XSSRUW6HUYLFH%XLOGLQJ3URYLGHVIRUWKHFRQVWUXFWLRQRIDQDGPLQLVWUDWLYHRIILFHIDFLOLW\WRKRXVHWKH $LUSRUW6\VWHPVWDII x 2XWVLGH 3ODQW &DPSXV ,7 5LQJ  7KLV SURMHFW ZLOO FRPSOHWH WKH 2XWVLGH 3ODQW &RPPXQLFDWLRQ 5LQJ DURXQGWKHFDPSXV x 2WKHU&DSLWDO3URMHFWV0LVFHOODQHRXVSURMHFWVDWWKH$LUSRUWDQGDW6WLQVRQ

        7KHUHPDLQGHURIWKLVSDJHLVLQWHQWLRQDOO\OHIWEODQN  

$

 

7KHDQWLFLSDWHGVRXUFHVRIIXQGLQJIRUWKH&,3DUHDVIROORZV )XQGLQJ6RXUFHV )HGHUDO*UDQWV (QWLWOHPHQWV 'LVFUHWLRQDU\ *HQHUDO'LVFUHWLRQDU\ 1RLVH'LVFUHWLRQDU\ 7['27*UDQW Passenger Facility Charges (“PFCs”) 3D\$V
  

3URMHFWHG)XQGLQJ                 

7KH&,3LQFOXGHVFDSLWDOLPSURYHPHQWVZKLFKDUHJHQHUDOO\GHVFULEHGDVIROORZV ,PSURYHPHQW $LUSRUW 7HUPLQDO)DFLOLWLHV $LUILHOG,PSURYHPHQWV $FRXVWLFDO7UHDWPHQW3URJUDP &RQVROLGDWHG5HQWDO&DU)DFLOLW\ 2WKHU3URMHFWV 6WLQVRQ 7RWDO

$PRXQW          

  3)&3URMHFWV3XEOLFDJHQFLHVZLVKLQJWRLPSRVH3)&VDUHUHTXLUHGWRDSSO\WRWKH)$$IRUVXFKDXWKRULW\ DQGPXVWPHHWFHUWDLQUHTXLUHPHQWVVSHFLILHGLQWKH86&†DQGWKHLPSOHPHQWLQJUHJXODWLRQVLVVXHGE\WKH )$$   The FAA issued a “Record of Decision” on August 29, 2001 approving the City’s initial PFC application. 7KH&LW\DVWKHRZQHUDQGRSHUDWRURIWKH$LUSRUWUHFHLYHGDXWKRULW\WRLPSRVHD3)&DQGWRFROOHFWLQWKH DJJUHJDWHDSSUR[LPDWHO\LQ3)&5HYHQXHV2Q)HEUXDU\WKH)$$DSSURYHGDQDSSOLFDWLRQ DPHQGPHQWLQFUHDVLQJWKH3)&IXQGLQJE\DQHWDPRXQWRI2Q)HEUXDU\WKH)$$DSSURYHG the City’s application for an additional $50,682,244 in PFC collections to be used for 11 new projects. On June 26, WKH)$$DSSURYHGWZRDPHQGPHQWVWRDSSURYHGDSSOLFDWLRQVLQFUHDVLQJWKH3)&IXQGLQJE\DQHWDPRXQWRI  IRU WZR SURMHFWV DQG  IRU IRXU SURMHFWV  $GGLWLRQDOO\ WKH )$$ DSSURYHG WKH LQFUHDVHG FROOHFWLRQUDWHIURPWRHIIHFWLYH2FWREHU,Q0D\WKH)$$DSSURYHGDPHQGPHQWVWRWKH City’s PFC collection authorization to increase the scope of the PFC funding for certain PFC projects and permitted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qualifying enplaned passenger. The City has received PFC “impose and use” authority, meaning that it may impose WKH3)&DQGXVHWKHUHVXOWDQW3)&5HYHQXHVIRUDOOSURMHFWVFRQWHPSODWHGWREHFRPSOHWHGXVLQJSURFHHGVRIWKH 3DULW\3)&%RQGV$VRI 6HSWHPEHUWKH&LW\KDVFROOHFWHG  XQDXGLWHG LQ3)&5HYHQXHV

$

VLQFHDXWKRULW\WRLPSRVHDQGFROOHFWWKH3)&ZDVUHFHLYHG7KHHVWLPDWHG3)&FROOHFWLRQH[SLUDWLRQGDWHLV-XQH   To date, the following projects have been approved as “impose and use” projects:  x 5HSODFH5HPDLQ2YHUQLJKW$SURQ x ,PSOHPHQW7HUPLQDO0RGLILFDWLRQV x 5HFRQVWUXFW3HULPHWHU5RDG x &RQVWUXFW1HZ7HUPLQDO% x $FRXVWLFDO7UHDWPHQW3URJUDP x &RQVWUXFW(OHYDWHG7HUPLQDO5RDGZD\ x 8SJUDGH&HQWUDO8WLOLW\3ODQW x &RQVWUXFW$SURQ–7HUPLQDO([SDQVLRQ x ,QVWDOO8WLOLWLHV–7HUPLQDO([SDQVLRQ x 5HSODFH7ZR$LUFUDIW5HVFXHDQG)LUH)LJKWLQJ9HKLFOHV x &RQGXFW(QYLURQPHQWDO,PSDFW6WDWHPHQW x 5HFRQVWUXFW7HUPLQDO$UHD5RDGZD\ x ,QVWDOO1RLVH0RQLWRULQJ(TXLSPHQW x ,QVWDOO7HUPLQDODQG$LUILHOG6HFXULW\,PSURYHPHQWV x ,QVWDOO$LUILHOG(OHFWULFDO,PSURYHPHQWV x 3)&'HYHORSPHQWDQG$GPLQLVWUDWLRQ&RVWV  &)&DQG&)&3URMHFWV7KH&LW\&RXQFLOE\RUGLQDQFHDGRSWHGRQ0DUFKDXWKRUL]HGWKH$LUSRUW to impose the collection of a $4.50 per transaction day Customer Facility Charge (“CFC”) for rental car customers to SD\IRUDOOFRVWVDQGH[SHQVHVDVVRFLDWHGZLWKWKHSODQQLQJILQDQFLQJDQGFRQVWUXFWLRQDQGFHUWDLQRWKHUFRVWVIRUD Consolidated Rental Car Facility (the “ConRAC”) to open in three to five years. The rental car companies (RACs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ick Turnaround Area (“QTA”). Floor slabs have been poured for more than 85% of the first and VHFRQGOHYHOVZLWKOHYHOWKUHHIORRUSRXUHG:RUNFRQWLQXHVWRZDUGWKHVFKHGXOHG6HSWHPEHUVXEVWDQWLDO FRPSOHWLRQ   % &%      'LUHFWVXSHUYision of airport operations is managed by the Department of Aviation (the “Department”). The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dvisory Commission. The Commission’s primary purpose is to advise the Department regarding policies, including DQ\QRLVHUHODWHGLVVXHVDIIHFWLQJWKH$LUSRUW6\VWHPDQGDLUWUDQVSRUWDWLRQLQLWLDWLYHV   Noel T. “Tom” Jones was appointed in January 2016 to serve as the City’s Aviation Director for a 12PRQWK SHULRGZKLOHWKH&LW\FRQGXFWHGDQDWLRQDOVHDUFKIRUDSHUPDQHQWGLUHFWRU0U-RQHVLVDUHWLUHG$LU)RUFH/LHXWHQDQW *HQHUDOZKRZDVSUHYLRXVO\WKH9LFH&RPPDQGHURIDOO86$LU)RUFHVLQ(XURSH7KH&LW\DQWLFLSDWHVVHOHFWLRQRI DQHZDYLDWLRQGLUHFWRUE\1RYHPEHU

$

 7KH$LUSRUW6\VWHPKDVSROLFHDQGILUHGHSDUWPHQWVRQSUHPLVHV7KHSROLFHDQGILUHILJKWHUVDUHDVVLJQHG WRGXW\DWWKH$LUSRrt System from the City’s police and fire departments, but their salaries are paid by the Department DVDQRSHUDWLRQDQGPDLQWHQDQFHH[SHQVHRIWKH$LUSRUW6\VWHP   7KH )$$ KDV UHJXODWRU\ DXWKRULW\ RYHU QDYLJDWLRQDO DLG HTXLSPHQW DLU WUDIILF FRQWURO DQG RSHUDWLQJ VWDQGDUGVIRUWKH$LUSRUW6\VWHP   7KH SDVVDJH RI WKH $YLDWLRQ DQG 7UDQVSRUWDWLRQ 6HFXULW\ $FW LQ 1RYHPEHU RI  FUHDWHG WKH Transportation Security Administration (“TSA”). The Department has worked closely with the TSA to forge a higher OHYHORIVHFXULW\IRUWKHWUDYHOLQJSXEOLF76$HPSOR\VDERXWLQGLYLGXDOVDWWKH$LUSRUW6\VWHPWRPHHWWKHIHGHUDO VHFXULW\UHTXLUHPHQWV   $VRI2FWREHUWKH$LUSRUW6\VWHPKDVDXWKRUL]HGSRVLWLRQV  3ODQQLQJ'HYHORSPHQW 0DLQWHQDQFH  $LUSRUW2SHUDWLRQV  3ROLFH  )LUH5HVFXH  )LQDQFH $GPLQLVWUDWLRQ  $YLDWLRQ'LUHFWRU  6WLQVRQ$LUSRUW   %  #  

 .)%  -#  % #    7KHKLVWRULFDOILQDQFLDOSHUIRUPDQFHRIWKH$LUSRUW6\VWHPLVVKRZQEHORZIRUWKHODVWILYHILVFDO\HDUV    )LVFDO
As reported in the City’s audited financial statements. 6RXUFH&LW\RI6DQ$QWRQLR'HSDUWPHQWRI)LQDQFH

   7KHUHPDLQGHURIWKLVSDJHLVLQWHQWLRQDOO\OHIWEODQN                 

$

*     .%

 -#  %    7KHWRWDOGRPHVWLFDQGLQWHUQDWLRQDOHQSODQHGSDVVHQJHUVRQDFDOHQGDU\HDUEDVLVDORQJZLWK\HDUWR\HDU SHUFHQWDJHFKDQJHDUHVKRZQEHORZ  &DOHQGDU    ,QFUHDVH  3HUFHQW  
 .%*%   

 -#  %    7KHWRWDOHQSODQHGDQGGHSODQHGIRULQWHUQDWLRQDOSDVVHQJHUVRQDFDOHQGDU\HDUEDVLVDORQJZLWK\HDUWR \HDUSHUFHQWDJHFKDQJHDUHVKRZQEHORZ  &DOHQGDU    ,QFUHDVH  3HUFHQW  
7KHLQFUHDVHLQWRWDOHQSODQHGDQGGHSODQHGLQWHUQDWLRQDOSDVVHQJHUVIURPWRLVDWWULEXWDEOHWRQHZDLUOLQHVRSHUDWLQJ LQ7KHVHDLUOLQHVDUH$LU7UDQ,QWHU-HWDQG9LYD$HUR%XV  6RXUFH&LW\RI6DQ$QWRQLR'HSDUWPHQWRI$YLDWLRQ 

  7KHUHPDLQGHURIWKLVSDJHLVLQWHQWLRQDOO\OHIWEODQN          

$

   2 -#  %    7KHKLVWRULFDODLUFUDIWODQGHGZHLJKWLQSRXQGXQLWVRQDFDOHQGDU\HDUEDVLVLVVKRZQEHORZ/DQGHG ZHLJKWLVXWLOL]HGLQWKHcomputation of the Airport’s landed fee.     &DOHQGDU  ,QFUHDVH 3HUFHQW     
  

  

$

>7+,63$*(,17(17,21$//</()7%/[email protected]

$33(1',;% 



 

BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB 

&,7<38%/,&6(59,&(            

  %$6,&),1$1&,$/67$7(0(176 )257+(),6&$/<($56(1'(' -$18$5<$1' $1',1'(3(1'(17$8',7256’5(3257                  

>7+,63$*(,17(17,21$//</()7%/[email protected]

City Public Service of San Antonio, Texas Basic Financial Statements For the Fiscal Years Ended January 31, 2016 and 2015 Table of Contents Management’s Discussion and Analysis – Required Supplementary Information (Unaudited) Introduction Basic Financial Statements Overview Financial Highlights and Significant Accounting Policies Results of Operations Financial Position Financing and Debt Covenants Compliance Currently Known Facts Requests for Information Independent Auditors’ Report Basic Financial Statements Statements of Net Position Statements of Revenues, Expenses and Changes in Net Position Statements of Cash Flows Notes to Basic Financial Statements Note 1: Summary of Significant Accounting Policies Note 2: Cash, Cash Equivalents and Investments Note 3: Disaggregation of Current Accounts Receivable and Accounts Payable Note 4: Capital Assets, Net Note 5: Revenue Bond and Commercial Paper Ordinances Requirements Note 6: Revenue Bonds Note 7: Commercial Paper and Related Revolving Credit Agreements Note 8: Flexible Rate Revolving Note Note 9: Employee Pension Plan Note 10: Other Postemployment Benefits Note 11: Other Obligations and Risk Management Note 12: Other Financial Instruments Note 13: Fair Value Measurement Note 14: South Texas Project Note 15: Commitments and Contingencies Note 16: Leases Note 17: Pollution Remediation Obligation Note 18: Subsequent Event Required Supplementary Information (Unaudited) Schedules of Changes in CPS Energy Net Pension Liability and Related Ratios Schedules of Employer Contributions to CPS Energy Pension Plans CPS Energy Other Postemployment Benefits Schedules of Funding Progress STP Pension and Other Postemployment Benefits Glossary of Terms B-1

2 2 3 9 15 18 23 25 26 28 29 30 31 43 51 51 55 57 61 62 63 67 71 73 78 80 89 92 95 95 96 97 98 100 101

CPS Energy FY 2016 Annual Report

MANAGEMENT’S DISCUSSION AND ANALYSIS INTRODUCTION The following Management’s Discussion and Analysis (“MD&A”) serves as an introduction to the financial statements of City Public Service Board of San Antonio (also referred to as “CPS Energy,” “CPS” or the “Company”). It is intended to be an objective and easily understandable analysis of significant financial and operating activities and events for the fiscal year (“FY”) ended January 31, 2016, (“FY 2016”) compared to the fiscal year ended January 31, 2015 (“FY 2015”). It also provides an overview of CPS Energy’s general financial condition and results of operations for FY 2015, compared to the previous fiscal year ended January 31, 2014 (“FY 2014”). This MD&A has been prepared in accordance with Governmental Accounting Standards Board (“GASB”) Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments, and should be read in conjunction with the audited financial statements and accompanying notes that follow.

BASIC FINANCIAL STATEMENTS OVERVIEW In accordance with GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, the Statements of Net Position present CPS Energy’s assets, deferred outflows of resources, liabilities, deferred inflows of resources and net position as of the end of each fiscal year. Assets are separated into current and noncurrent categories and are reported in the order of liquidity. Current assets include unrestricted cash and cash equivalents; investments; customer, interest and other accounts receivable; and inventories, as well as prepayments and other current assets. Noncurrent assets include cash and cash equivalents, investments, and interest and other accounts receivable that have been restricted by state laws, ordinances or contracts. Noncurrent assets also include the pension regulatory asset, other noncurrent assets and net capital assets. Deferred outflows of resources include unrealized pension contributions made in the current year, unrealized losses related to pension, unrealized losses on fuel hedges and unamortized debt reacquisition costs. Consistent with the reporting of assets on the Statements of Net Position, liabilities are segregated into current and noncurrent categories. Current liabilities include the current maturities of debt, accounts payable and accrued liabilities. Noncurrent liabilities include net long-term debt, the South Texas Project (“STP”) decommissioning liability, STP decommissioning net costs refundable, net pension liability and other noncurrent liabilities. Deferred inflows of resources include unrealized gains related to pension and unrealized revenues associated with the FY 2014 sale of certain assets. The Statements of Net Position report net position as the difference between (a) the sum of assets and deferred outflows of resources and (b) the sum of liabilities and deferred inflows of resources. The components of net position are classified as net investment in capital assets, restricted or unrestricted. An unrestricted designation indicates the net funds are available for operations. See accompanying independent auditors’ report.

2

CPS Energy FY 2016 Annual Report Within the Statements of Revenues, Expenses and Changes in Net Position, operating results are reported separately from nonoperating results, which primarily relate to financing and investing. Other payments to the City of San Antonio, contributed capital, special items related to the termination of the lease/leaseback transaction, the STP Units 3 and 4 extraordinary item impairment loss and the effect of STP’s defined-benefit plan funding obligations are also reported separately as components of the change in net position. These statements identify revenue generated from sales to cover operating and nonoperating expenses. Operating expenses are presented by major cost categories. Revenues remaining are available to service debt, fulfill city payment commitments, finance capital expenditures and cover contingencies. The Statements of Cash Flows present cash flows from operating activities, capital and related financing activities, noncapital financing activities, and investing activities. These statements are prepared using the direct method, which reports gross cash receipts and payments, and presents a reconciliation of operating income to net cash provided by operating activities. These statements also separately list the noncash financing and investing activities.

FINANCIAL HIGHLIGHTS AND SIGNIFICANT ACCOUNTING POLICIES Allowance for Funds Used During Construction (“AFUDC”) – To reflect funding methodology, the AFUDC rate includes both a debt and an equity component. The blended rate is composed of 50% equity and 50% debt based on construction funding. The rate is reviewed quarterly to determine if any adjustments are necessary. Alternate AFUDC rates are applied to projects costing more than $100 million, reflecting the method by which they are funded. Build America Bonds (“BABs”) – The American Recovery and Reinvestment Act (“ARRA”) of 2009 provided authority for the issuance of BABs, which were issuable in calendar years 2009 and 2010 as taxable bonds. The ARRA permitted the issuer or the issuer’s paying agent to receive subsidy payments equal to 35% of the bond’s interest costs directly from the U.S. Department of the Treasury. Pursuant to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, the federal government reduced the BABs subsidy by 8.7% for payments made during the period March 1, 2013, through their fiscal year ended September 30, 2013, then subsequently 7.2% for payments made during the period October 1, 2013, through September 30, 2014. The subsidy was reduced by 7.3% for payments made during the period October 1, 2014, through September 30, 2015. The subsidy is being reduced by 6.8% from October 1, 2015, through September 30, 2016. Transaction details for CPS Energy’s BABs issuances are provided in Note 6 – Revenue Bonds. The City of San Antonio – CPS Energy is considered an asset of the community through its legal ownership by the City of San Antonio, Texas (“City”). In turn, CPS Energy is treated as a component unit of the City, which has a September 30 fiscal year end. Communication Towers Sale – In FY 2014, the Company entered into an agreement for $41.0 million to sell 69 existing communication towers to an independent third party, including provisions for the Company’s continued use of select space on those towers, the purchaser’s use of space in the Company’s communication shelters located near the towers, and the assignment of existing license agreements with other third parties using space on the towers. See Note 4 – Capital Assets, Net and Note 16 – Leases for additional information. Contributed Capital – Third-party contributions made for construction of capital assets flow through the Statements of Revenues, Expenses and Changes in Net Position and are shown on the Statements of Net Position as a component of net investment in capital assets. The amount reported for contributed capital was $46.5 million for FY 2016, as compared with $43.7 million for FY 2015. This included donated assets

See accompanying independent auditors’ report.

3

CPS Energy FY 2016 Annual Report of $3.8 million and $4.5 million, respectively. The remaining portion of these balances, $42.7 million for FY 2016 and $39.2 million for FY 2015, represents contributions received from customers as payments for utility extensions and services, as well as funding for the Light Emitting Diode (“LED”) streetlight project and a project to develop an independent spent fuel storage installation (“Dry Cask Storage Project”). Counterparty Risk – CPS Energy is exposed to counterparty risk associated with various transactions primarily related to debt, investments, fuel hedging and wholesale power. Counterparty risk is the risk that a counterparty will fail to meet its obligations in accordance with the terms and conditions of its contract with the Company. The Company has policies and practices in place to ensure the solvency of counterparties is assessed accurately, monitored regularly and managed actively through its Enterprise Risk Management & Solutions Division. CPS Energy Component Units – As required under GASB Statement No. 61, The Financial Reporting Entity: Omnibus, an amendment of GASB Statements No. 14 and No. 34, the assets and liabilities accumulated for CPS Energy’s two decommissioning trusts for STP Units 1 and 2 (“Decommissioning Trusts” or “Trusts”) are combined into the CPS Energy financial statements using the blended method of inclusion. Initially, CPS Energy owned a 28% interest in STP Units 1 and 2. In May 2005, CPS Energy purchased an additional 12% interest in these units. Assets from an associated decommissioning trust were also received with this purchase. CPS Energy reports the assets in both Trusts—the 28% interest and the 12% interest—as component units. Decommissioning – The Company accounts for decommissioning by recognizing a liability and expense for a pro rata share of projected decommissioning costs as determined by the most recent cost study. A new cost study is performed every five years; and, in years subsequent to the latest study, estimated annual decommissioning expense and an increase in the liability is calculated by applying the effects of inflation and the ratio of years of plant usage to total plant life. See Note 14 – South Texas Project for additional details on the most recent cost study. Additionally, due to requirements under the Code of Federal Regulations governing nuclear decommissioning trust funds, a zero net position approach is applied in accounting for the Decommissioning Trusts. Accordingly, current-year and prior-year activity in the Trusts is reported in the nonoperating income (expense) section of the Statements of Revenues, Expenses and Changes in Net Position as STP decommissioning net costs recoverable (refundable). The cumulative effect of activity in the Trusts is reported on the Statements of Net Position as a noncurrent liability referred to as STP decommissioning net costs refundable since any excess funds are payable to customers. Going forward, prolonged unfavorable economic conditions could result in the assets of the Trusts being less than the estimated decommissioning liability. In that case, instead of an excess as currently exists, there would be a deficit that would be reported as STP decommissioning net costs recoverable. This amount would be receivable from customers. Currently, the Dry Cask Storage Project is under way at STP in order to provide for storage of spent nuclear fuel after the spent fuel pool has reached capacity. CPS Energy’s Decommissioning Trusts have separate spent fuel management accounts to pay for those costs. By contract, spent fuel will eventually be removed to final storage by the Department of Energy (“DOE”). The DOE failed to meet the contractual start date to receive spent fuel, and STP and other utilities have reached settlement agreements with the DOE. In the most recent settlement agreement dated January 24, 2014, the DOE committed to reimburse STP for allowable spent fuel management expenditures through 2016. Ongoing costs for the spent fuel management project are being funded by the STP owners (CPS Energy; the City of Austin; and NRG South Texas LP, a wholly owned subsidiary of NRG Energy, Inc.) as expenditures are incurred. CPS Energy periodically requests reimbursement from its Decommissioning

See accompanying independent auditors’ report.

4

CPS Energy FY 2016 Annual Report Trusts for the Company’s portion of allowable costs. Annually, the South Texas Project Nuclear Operating Company (“STPNOC”) submits claims to the DOE for the reimbursement of allowable costs for spent fuel management. Allowable costs are returned to the owners by STPNOC upon receipt of funds from the DOE. In turn, CPS Energy reimburses the Trusts for the settlement amount received from the DOE. Qualifying spent fuel management costs not reimbursable by the DOE are funded by the Trusts. Spent fuel management costs that do not qualify for reimbursement by the DOE or the Trusts are recorded as STP operations and maintenance (“O&M”) expense or capital costs. Depreciation Study – CPS Energy engages an independent third-party consulting firm to conduct a depreciation study every five years. The most recent study was completed in FY 2013, and the resulting depreciation rates were applied beginning in that period. Employee Benefit Plans – The City Public Service Group Health and Group Life Insurance Plans, and the CPS Energy Long Term Disability Income Plan (collectively, “Employee Benefit Plans”) are separately audited and reported. The financial results of the Employee Benefit Plans are not included herein except for certain disclosures as provided in Note 10 – Other Postemployment Benefits and in Required Supplementary Information. ERCOT Nodal Market System – Electric Reliability Council of Texas (“ERCOT”) is the independent system operator managing the flow of electric power for approximately 90% of electric load for the state of Texas. ERCOT schedules power on the electric grid in a nodal market with more than 4,000 pricing nodes. In the nodal market system, generators are required to make their capacity and ancillary services available to ERCOT, and load-serving entities purchase their supply needs from ERCOT in the day-ahead market and true up in the real-time market. As both a generator and load-serving entity, CPS Energy is an active participant in the nodal market system and actively monitors and manages its exposure to the risks inherent in the retail and wholesale markets. Federal Grant Programs – Periodically, federal grants are made available to CPS Energy as a subrecipient for a portion of grant funds allocated to the state of Texas. Grant receipts are recorded as nonoperating income and generally reimburse CPS Energy for costs, recorded as operating expenses, incurred in the administration of the program. This accounting treatment results in no impact to the Company’s net position. Revenues associated with the grant-related programs are exempt from payments of a percentage of gross revenues made to the City. Grant funding received by the Company is subject to review and audit by the grantor agencies. Such audits could lead to requests for reimbursements to the grantor agencies for expenditures disallowed under terms of the grants. Management believes such disallowances, if any, would be immaterial. Flexible Rate Revolving Note (“FRRN”) Private Placement Program – On January 20, 2009, CPS Energy’s Board of Trustees (“Board”) authorized the establishment of a flexible rate revolving note program to provide additional liquidity in support of the Company’s electric and gas systems (“Systems”). Under the current program, CPS Energy can issue taxable or tax-exempt notes with individual maturities of one year or less at fixed or variable interest rates in an aggregate principal amount at any one time outstanding not to exceed $26 million, reduced in FY 2016 from $100 million. The program became effective on April 28, 2009, and through annual renewals authorizes the issuance of such notes through November 1, 2028. The FRRN has been classified as short-term in accordance with the financing terms of the Note Purchase Agreement and is reported on the Statements of Net Position under current maturities of debt. The note outstanding under this program totaled $25.2 million at January 31, 2016, and January 31, 2015. See Note 8 – Flexible Rate Revolving Note. Hedging Derivative Instruments – CPS Energy accounts for derivative instruments in accordance with GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments. The primary derivative instruments currently used by CPS Energy are fuel hedges, which are used to reduce price risk

See accompanying independent auditors’ report.

5

CPS Energy FY 2016 Annual Report for natural gas purchases. GASB Statement No. 53 requires that hedging derivative instruments be reported at fair value on the Statements of Net Position. In FY 2016, 37% of distribution and 14% of generation natural gas volumes were hedged. In FY 2015, 32% of distribution and 48% of generation natural gas volumes were hedged. See Note 12 – Other Financial Instruments. Interim Transmission Costs of Service (“TCOS”) Filing – On June 3, 2014, CPS Energy filed an Application for Interim Update of Wholesale Transmission Rates, based on FY 2014 data, with the Public Utility Commission of Texas (“PUCT”). This interim TCOS filing was submitted to request an increase in transmission revenue requirements as a result of increased capital investment since FY 2006. The application was approved on July 23, 2014, and resulted in an annual transmission revenue requirement of $169.5 million. This represents an increase of $74.3 million from the $95.2 million transmission revenue requirement previously approved on January 19, 2007. Interim transmission rates are subject to re-evaluation by the PUCT at the time of a transmission service provider’s next complete wholesale transmission rate review. CPS Energy management does not expect that any adjustment to the approved interim rates resulting from a future re-evaluation would be significant. Lease/Leaseback Transaction – The City was a party to a transaction, entered into in June 2000, involving its J.K. Spruce Unit 1 (“Spruce 1”) coal-fired electric generating unit, pursuant to which the facility was subject to a variety of contractual arrangements, including a lease agreement, with CPS Energy as lessee. The term of the lease was scheduled to expire in March 2032. In February 2014, the parties executed an agreement terminating the transaction in its entirety. As a result of this termination, CPS Energy was released from all scheduled payment and security obligations under the lease transaction. The termination transaction resulted in a noncash gain of $43.4 million, net of the related City payment on the termination, which was reported as a special item on the Statements of Revenues, Expenses and Changes in Net Position. Refer to Note 1 – Summary of Significant Accounting Policies for additional information on the Lease/Leaseback Transaction. New Generation Assets – In FY 2013, taxable senior lien bonds were issued to purchase the Rio Nogales combined-cycle natural gas electric generating plant in Seguin, Texas. The 800-MW plant was being utilized to provide a portion of its power to a third party that had executed a multiyear agreement, which expired in September 2015, for an option to call on power from the plant. Any remaining power is available for CPS Energy to sell into the ERCOT market or to utilize to meet its commitments. As of February 1, 2016, CPS Energy integrated the Rio Nogales plant into its rate base to provide generation capacity that will not otherwise be available once J.T. Deely Units 1 and 2 are mothballed. In conjunction with the purchase, CPS Energy entered into a Tax Exemption Settlement Agreement in which CPS Energy agreed to pay $25.5 million to certain parties to compromise, terminate claims and settle any disputes relating to exemption of ad valorem taxes involving the parties to this agreement. The payment was recorded as an intangible asset that will be amortized over the life of the agreement, which runs through December 2041. See Note 4 – Capital Assets, Net for more details on the Rio Nogales plant purchase. Pension Plan – The financial statements of the City Public Service Pension Plan (“Plan”) are separately audited and reported. The financial results of the Plan are not included herein except for certain disclosures as provided in Note 9 – Employee Pension Plan and in Required Supplementary Information. In 2012, GASB issued a new standard addressing accounting and financial reporting for all governmentsponsored pension plans administered as trusts. CPS Energy adopted the new guidance in FY 2015 and concurrently restated its prior fiscal year financial statements to reflect the effects of the guidance for all periods presented. The requirements of the new guidance include significant changes in the measurement and recognition of the Company’s liability related to the Plan, recognition of deferred outflows of resources and deferred inflows of resources related to pension, changes in the measurement of pension expense, as well as comprehensive changes to the disclosures included in the notes to the financial statements and in Required Supplementary Information. The net effect of prior period

See accompanying independent auditors’ report.

6

CPS Energy FY 2016 Annual Report restatements made to comply with the new guidance was accounted for as a regulatory asset that is being amortized over a 50-year period. Regulatory accounting, in accordance with guidance provided by GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in PreNovember 30, 1989 FASB and AICPA Pronouncements, permits certain costs to be capitalized as regulatory assets until they are recovered through future rates. Rate Increases – Rates are set by the Board and approved by the San Antonio City Council. On November 7, 2013, the City Council approved a 4.25% increase in both CPS Energy’s electric and natural gas base rates, which was effective February 2014. Reclassifications – Certain amounts in the prior years’ financial statements have been reclassified to conform to the current-year presentation. SA Energy Acquisition Public Facility Corporation (“PFC”) – The PFC is a public, nonprofit corporation organized under the laws of the state of Texas pursuant to the Texas Public Facility Corporation Act, Chapter 303, Texas Local Government Code. The PFC was organized in FY 2008 to assist its sponsor, the City, in the procurement of natural gas and in financing, refinancing or providing public facilities to be devoted to public use. The PFC is a component unit of the City. On June 14, 2007, the PFC entered into a Natural Gas Supply Agreement with the City, acting by and through CPS Energy. This gas supply agreement provides for the sale to CPS Energy, on a pay-as-you-go basis, of all natural gas to be delivered to the PFC under a Prepaid Natural Gas Sales Agreement. Under this prepaid gas agreement between the PFC and J. Aron, the gas supplier and a subsidiary of Goldman, Sachs & Co., the PFC prepaid the cost of a specified supply of natural gas to be delivered over 20 years. CPS Energy’s net savings resulting from this transaction are passed on, in their entirety, to its distribution gas customers. The financial statements of the PFC are separately audited and reported. On February 25, 2013, the PFC executed certain amendments to the Prepaid Natural Gas Sales Agreement entered into with J. Aron in 2007 and other related documents with respect to the 2007 prepayment transaction with J. Aron. Under the resolution and the amendments, Goldman, Sachs & Co. surrendered for cancellation $111.1 million of the SA Energy Acquisition Public Facility Corporation Gas Supply Revenue Bonds, Series 2007 owned by J. Aron; Goldman, Sachs & Co.; or affiliates. In exchange, the PFC agreed to reduce future required natural gas delivery volumes from 104.6 million MMBtu to 81.3 million MMBtu and to adjust the notional amount of its commodities price hedge so that hedged revenue from gas sales will bear at least the same proportion to annual debt service requirements as before the transaction. In conjunction with the transaction, a portion of the savings related to the purchase of natural gas from the PFC that would have been passed on to CPS Energy’s distribution gas customers over the 20year life of the original agreement was accelerated. Distribution gas customers benefitted from the accelerated savings from March 1, 2013, through June 30, 2015. Save for Tomorrow Energy Program (“STEP”) – CPS Energy has projected it will spend approximately $849 million over a 12-year period, beginning in FY 2010, on energy efficiency and conservation through STEP. Contributing towards its goal to save 771 MW by 2020, CPS Energy’s programs include home weatherization, higher efficiency light bulbs, solar rebates, peak saver thermostats, home area networks, demand response, rooftop and community solar programs, and other such initiatives. Annually, approximately $9.0 million of STEP expenses are funded through the electric base rate and reported as CPS Energy O&M expenses. STEP expenses over this initial amount per year are recovered through the fuel adjustment factor over a 12-month period beginning in the subsequent fiscal year after the costs are incurred and have been independently validated. These STEP recoveries are accrued as a regulatory asset referred to as STEP net costs recoverable.

See accompanying independent auditors’ report.

7

CPS Energy FY 2016 Annual Report Securities Lending – CPS Energy and the Decommissioning Trusts were engaged in securities lending transactions under a contract with their lending agent, Frost Bank, a Texas-based financial institution. GASB Statement No. 28, Accounting and Financial Reporting for Securities Lending Transactions, provides guidance for entities reporting and disclosing securities lending transactions. This guidance requires reporting certain securities lending collateral on the statement of net position as an asset, with a corresponding liability for the obligation to repay the collateral. The securities lending program with Frost Bank was discontinued effective April 1, 2015. Solar Prepayments – In November 2011, the Company entered into a prepaid agreement with SunEdison for purchased power from San Antonio-area solar energy facilities with a total of 30 MW of capacity. In FY 2013, $77.0 million in prepayments were made for approximately 60% of the anticipated annual output over a period of 25 years. At January 31, 2016, of the remaining prepayment balance, $3.1 million was classified as current and $63.0 million was classified as noncurrent. At January 31, 2015, $3.1 million was classified as current and $66.0 million was classified as noncurrent. The purchase of the balance of the output is on a pay-as-you-go basis. As part of the agreement, CPS Energy has the right to purchase the facilities six years after commencement of commercial operation, which occurred during 2012 for each of the three facilities that underlie the agreement. STP Units 1 and 2 – Correlating to CPS Energy’s 40% interest in STP Units 1 and 2 that have been in operation since 1988 and 1989, respectively, the applicable financial results of the nonprofit specialpurpose operations project are combined within these financial statements. These units currently are licensed by the Nuclear Regulatory Commission (“NRC”) to operate for a period of 40 years, and an application to extend the license for an additional 20 years is currently under review by the NRC. STP follows Financial Accounting Standards Board guidance. See Note 14 – South Texas Project. STP Units 3 and 4 – On October 29, 2007, the Board approved a resolution enabling CPS Energy to participate in development activities related to new nuclear generation units to be constructed near Bay City, Texas, on a site where STP Units 1 and 2 currently operate. The development project is referred to as STP Units 3 and 4. At January 31, 2010, CPS Energy held a 50% interest in the development. As a result of a litigation settlement with Nuclear Innovation North America, Inc., the Company’s partner in the project, CPS Energy’s ownership in STP Units 3 and 4 was reduced from 50% to 7.625% effective March 1, 2010. Each fiscal year, CPS Energy performs a thorough re-evaluation of its investment in the STP Units 3 and 4 project to reassess the ongoing viability of the project and the appropriateness of continuing to report the cost of the project on its Statements of Net Position. In FY 2016, the Company reached the conclusion that as a result of sustained changes in a number of environmental and economic factors directly affecting the projected economic feasibility of completing construction of STP Units 3 and 4, the project had experienced a permanent impairment. The Company determined it was appropriate to write off the entire $391.4 million investment in STP Units 3 and 4. The impairment loss was recorded as an extraordinary item on CPS Energy’s Statements of Revenues, Expenses, and Changes in Net Position for the period ended January 31, 2016. For more detailed information on STP Units 3 and 4, see Note 14 – South Texas Project.

See accompanying independent auditors’ report.

8

CPS Energy FY 2016 Annual Report

RESULTS OF OPERATIONS Summary of Revenues, Expenses and Changes in Net Position (Dollars in thousands)

2016 Revenues and nonoperating income Electric Gas Total operating revenues Nonoperating income, net Total revenues and nonoperating income

$

Expenses Operating expenses Fuel, purchased power and distribution gas STP operation and maintenance CPS Energy operation and maintenance Annual OPEB cost Pension and related expenses Grant program expenditures Energy efficiency and conservation (STEP) STEP net costs recoverable Regulatory assessments Decommissioning Depreciation and amortization Total operating expenses Nonoperating expenses Interest and debt-related Payments to the City of San Antonio Total nonoperating expenses Total expenses Income before other changes in net position Other payments to the City of San Antonio Contributed capital Special item – gain on lease/leaseback termination Special item – City payment on lease/leaseback termination Special item – CIED distributions Extraordinary item – impairment loss Effect of defined benefit plan funding obligations – STP Change in net position Net position – beginning Net position – ending

Fiscal Year Ended January 31, 2015 2014

2,320,005 175,300 2,495,305 36,041 2,531,346

$

$

2,211,568 212,503 2,424,071 34,194 2,458,265

$

2015 vs. 2014

(81,069) (53,303) (134,372) (10,734) (145,106)

-3.4% -23.3% -5.1% -22.9% -5.4% 0.0%

$

189,506 16,100 205,606 12,581 218,187

8.6% 7.6% 8.5% 36.8% 8.9%

789,134 142,471 371,811 13,655 42,717 44 62,884 (6,509) 66,965 17,714 410,228 1,911,114

910,136 141,538 368,392 8,808 45,307 31 58,977 (5,434) 79,334 22,532 395,788 2,025,409

868,719 156,077 322,176 6,961 58,021 528 55,302 (11,886) 72,480 19,684 390,215 1,938,277

(121,002) 933 3,419 4,847 (2,590) 13 3,907 (1,075) (12,369) (4,818) 14,440 (114,295)

-13.3% 0.7% 0.9% 55.0% -5.7% 41.9% 6.6% -19.8% -15.6% -21.4% 3.6% -5.6%

41,417 (14,539) 46,216 1,847 (12,714) (497) 3,675 6,452 6,854 2,848 5,573 87,132

4.8% -9.3% 14.3% 26.5% -21.9% -94.1% 6.6% 54.3% 9.5% 14.5% 1.4% 4.5%

199,945 320,454 520,399 2,431,513

215,841 320,933 536,774 2,562,183

216,110 296,672 512,782 2,451,059

(15,896) (479) (16,375) (130,670)

-7.4% -0.1% -3.1% -5.1%

(269) 24,261 23,992 111,124

-0.1% 8.2% 4.7% 4.5%

99,833 (11,601) 46,497 -

114,269 (15,285) 43,729 50,429

7,206 (20,833) 40,116 -

(14,436) 3,684 2,768 (50,429)

-12.6% 24.1% 6.3% -100.0%

(391,417)

(7,015) -

(3,371) -

7,015 (391,417)

100.0% -100.0%

(12,988)

39,063

2,267

$

2,401,074 228,603 2,629,677 46,775 2,676,452

Change 2016 vs. 2015

(254,421) 3,556,764 3,302,343

$

173,139 3,383,625 3,556,764

$

62,181 3,321,444 3,383,625

$

107,063 5,548 3,613 50,429

1485.7% 26.6% 9.0% 100.0%

(7,015) 3,371 -

-100.0% 100.0% -

15,255

117.5%

(52,051)

-133.2%

(427,560) 173,139 (254,421)

-246.9% 5.1% -7.2%

110,958 62,181 173,139

178.4% 1.9% 5.1%

$

Total Revenues and Nonoperating Income FY 2016 – Representing 98.6% of total revenues and nonoperating income, electric and gas revenues of $2,495.3 million decreased by $134.4 million, or 5.1%, compared to FY 2015. To meet its combined sales requirements for retail customers within the greater San Antonio certificated area and wholesale customers outside of this area, electric energy is primarily generated by CPS Energy from three sources—coal, nuclear and gas/oil. Approximately 76.2% and 85.8% of its customers’ electric energy needs in FY 2016 and FY 2015, respectively, were produced from CPS Energy’s generating units. In addition to the energy produced from Company-owned facilities, CPS Energy also purchased power from third parties, including producers of renewable energy, such as solar-generated and wind-generated power. Representing 91.7% of CPS Energy’s total revenues and nonoperating income, electric operating revenue of $2,320.0 million decreased $81.1 million from FY 2015. Contributing to the decrease were lower wholesale revenues due to lower sales volumes as a result of plant outages and lower margins during the

See accompanying independent auditors’ report.

9

CPS Energy FY 2016 Annual Report year. Partially offsetting the decrease were higher retail recoveries resulting from the higher average unit cost of fuel and higher regulatory recoveries. Representing 6.9% of total revenues and nonoperating income, gas revenue totaled $175.3 million, a $53.3 million decrease from FY 2015. This decrease was due to lower fuel revenues as a result of the lower average unit cost of fuel. Net nonoperating income of $36.0 million decreased $10.7 million from FY 2015, primarily due to a smaller overall investment portfolio balance. FY 2015 – Representing 98.2% of total revenues and nonoperating income, electric and gas revenues of $2,629.7 million increased by $205.6 million, or 8.5%, compared to FY 2014. Approximately 85.8% and 82.7% of its customers’ electric energy needs in FY 2015 and FY 2014, respectively, were produced from CPS Energy’s generating units. Representing 89.7% of CPS Energy’s total revenues and nonoperating income, electric operating revenue of $2,401.1 million increased $189.5 million from FY 2014. Contributing to this increase were higher wholesale revenues as a result of the colder weather in the first quarter of the year and fewer unplanned plant outages during the year. Also contributing were higher regulatory recoveries, as well as higher retail nonfuel recoveries as a result of the colder weather and the effect of the 2014 base rate increase, which became effective in February. Representing 8.5% of total revenues and nonoperating income, gas revenue totaled $228.6 million, a $16.1 million increase from FY 2014. This increase was due to the recovery of higher average unit fuel charges and higher sales volumes, also as a result of the colder weather. Nonfuel recoveries for gas were also higher due to the effect of the 2014 base rate increase, as mentioned above. Net nonoperating income of $46.8 million increased $12.6 million from FY 2014 primarily due to more favorable market conditions which resulted in an increase in unrealized investment portfolio returns.

Total Revenues and Nonoperating Income Fiscal Year Ended January 31,

2016

2014

2015

91.7%

90.0%

89.7% 8.5%

6.9%

1.8%

1.4%

Electric

8.6%

Gas

1.4%

Nonoperating

Operating Expenses FY 2016 – Operating expenses of $1,911.1 million were $114.3 million, or 5.6%, below the FY 2015 total of $2,025.4 million.

See accompanying independent auditors’ report.

10

CPS Energy FY 2016 Annual Report Combined electric and gas fuel costs, which are passed through to customers, totaled $789.1 million and represented 41.3% of total operating expenses. Electric fuel and purchased power costs of $713.6 million decreased $77.6 million, or 9.8%, compared to last year primarily due to lower wholesale sales volumes. Distribution gas costs of $75.5 million decreased by $43.4 million, or 36.5%, from last year due to a lower average unit cost. STP nonfuel O&M expenses of $142.5 million were comparable at $0.9 million, or 0.7%, higher than last year. CPS Energy’s nonfuel O&M expenses (including annual other postemployment benefit (“OPEB”) and pension costs) of $428.2 million were $5.7 million, or 1.3%, higher than last year. The increase was primarily due to expenditures associated with the development of CPS Energy’s Smart Grid Initiative and the new data center facility, partially offset by labor-related expenses in FY 2015. Energy efficiency and conservation (STEP) expense was $62.9 million and was higher than last year’s expense due to planned progressive spending on this program. These amounts represent costs incurred in the current year above the approximately $9.0 million funded through the base rate and recorded as CPS Energy O&M expenses. The related contra expense account, STEP net costs recoverable, reflects the net change during the period in expenses delayed to future periods when they will be recognized concurrent with their recovery through rate adjustments. This contra expense was $6.5 million compared to $5.4 million for FY 2015. Regulatory assessments, including those charged by the PUCT and ERCOT, of $67.0 million were $12.4 million lower due to lower transmission cost of service (“TCOS”), as a result of CPS Energy’s interim TCOS filing, offset by increased TCOS billed by other transmission service providers. Decommissioning expense of $17.7 million was $4.8 million, or 21.4%, below the FY 2015 expense of $22.5 million primarily due to a decrease in the inflation rate used to estimate the annual expense. Depreciation and amortization expense of $410.2 million increased by $14.4 million, or 3.6%, compared to FY 2015 as a result of normal increases in total plant-in-service balances. FY 2015 – Operating expenses of $2,025.4 million were $87.1 million, or 4.5%, above the FY 2014 total of $1,938.3 million. Combined electric and gas fuel costs, which are passed through to customers, totaled $910.1 million and represented 44.9% of total operating expenses. Electric fuel and purchased power costs of $791.2 million increased $35.6 million, or 4.7%, compared to FY 2014 primarily due to higher wholesale sales volumes. Distribution gas costs of $118.9 million increased by $5.8 million, or 5.1%, from FY 2014 due to a higher average unit cost and higher sales volumes. STP nonfuel O&M expenses of $141.5 million decreased $14.5 million, or 9.3%, compared to FY 2014 primarily due to lower labor and benefit costs, as well as changes in STPNOC’s capitalization policy, allowing a portion of administrative and general expenses supporting STPNOC’s capital program activities to be capitalized. CPS Energy’s nonfuel O&M expenses (including annual OPEB and pension costs) of $422.5 million were $35.3 million, or 9.1%, higher than FY 2014. The increase was primarily due to labor-related expenses and higher costs for materials and outside services. The increases were partially offset by a decrease in pension expense caused primarily by the amortization of FY 2015 deferred inflows related to pension.

See accompanying independent auditors’ report.

11

CPS Energy FY 2016 Annual Report Energy efficiency and conservation (STEP) expense was $59.0 million compared to $55.3 million for FY 2014. These amounts represent costs incurred in the current year above the approximately $8.0 million funded through the base rate and recorded as CPS Energy O&M expenses. The related contra expense account, STEP net costs recoverable, reflects the net change during the period in expenses delayed to future periods when they will be recognized concurrent with their recovery through rate adjustments. This contra expense was $5.4 million compared to $11.9 million for FY 2014. The difference from the prior year of the combined STEP expense and STEP net costs recoverable line items is attributable to the planned growth associated with this program. Regulatory assessments, including those charged by the PUCT and ERCOT, of $79.3 million were $6.9 million higher compared to FY 2014 primarily as a result of higher TCOS, which is partially driven by the continued development of transmission infrastructure to bring West Texas wind to the load markets. The increase was partially offset by the impact of CPS Energy’s interim TCOS filing. Decommissioning expense of $22.5 million was $2.8 million, or 14.5%, above the FY 2014 expense of $19.7 million primarily due to a $3.1 million contribution made by CPS Energy to the Decommissioning Trusts in FY 2015 for preshutdown expenditures. In FY 2014 the Company elected not to make a contribution for advance funding of future preshutdown decommissioning costs. Depreciation and amortization expense of $395.8 million increased slightly by $5.6 million, or 1.4%, compared to FY 2014 as a result of normal increases in total plant-in-service balances.

Total Operating Expenses Fiscal Year Ended January 31, (In millions) $2,100

$1,911.1

$2,025.4

$1,938.3

$1,800 $1,500 $1,200 $900 $600 $300 $0 2016

2015

Fuel, purchased power and distribution gas $ 789.1 STP O&M and decommissioning 160.2 CPS Energy O&M 371.8 56.4 Annual OPEB and pension costs Regulatory assessments 67.0 Grant program expenditures, energy efficiency and conservation (STEP), and 56.4 STEP net costs recoverable Depreciation and amortization 410.2

$ 910.1 164.1 368.4 54.1 79.3

$ 868.7 175.8 322.2 65.0 72.5

53.6 395.8

43.9 390.2

See accompanying independent auditors’ report.

12

2014

CPS Energy FY 2016 Annual Report

Nonoperating Expenses FY 2016 – Interest expense and other debt-related costs of $199.9 million were $15.9 million, or 7.4%, lower than FY 2015. The decrease was due to a reduction in interest expense as a result of the maturity of the 2002 bonds and the 2006A bonds. Also contributing was an increase in amortized bond premium due to the new issuances that occurred later in FY 2015. The recorded payments to the City totaled $320.5 million and were comparable at $0.5 million, or 0.1%, lower than FY 2015. See Other Changes in Net Position for information on other payments to the City. FY 2015 – Interest expense and other debt-related costs of $215.8 million were slightly lower at $0.3 million, or 0.1%, less than in FY 2014. The decrease was due to the interest savings in FY 2015 that resulted from the FY 2014 defeasance of 2003A Bonds and lower interest paid on commercial paper, offset by higher interest and debt-related costs from bond issuances in the current year. The recorded payments to the City totaled $320.9 million and were $24.3 million, or 8.2%, higher than in FY 2014. This increase was driven primarily by the higher sales volumes and related revenues as a result of the colder weather in the first quarter of the current year and the effect of the 2014 base rate increase, which became effective in February.

Other Changes in Net Position FY 2016 – Net income of $99.8 million was $14.4 million lower than the net income for FY 2015 of $114.3 million. Primarily contributing to the variance were lower wholesale nonfuel revenues and higher depreciation, partially offset by TCOS billings, lower debt service and higher retail nonfuel revenue. Other payments to the City totaled $11.6 million in FY 2016. This amount was $3.7 million lower than last year primarily due to a $4.2 million CIED fund distribution to the City in FY 2015. Contributed capital of $46.5 million was comparable at $2.8 million higher than last year. Primarily contributing to the increase was $4.8 million in contributed capital for the portion of the Dry Cask Storage Project capital costs to be reimbursed by the DOE. In FY 2016, the Company recorded as an extraordinary item a loss of $391.4 million related to the noncash impairment of CPS Energy’s investment in STP Units 3 and 4. See Note 4 – Capital Assets, Net. The effect of the STP defined benefit plan funding obligations, which represents 40% of the change in the unfunded pension and other post-retirement benefits liability at STP, was $2.3 million compared to $(13.0) million last year, reflecting a change of $15.3 million resulting from the remeasurement of the STP defined benefit plan funding obligations in FY 2015. CPS Energy’s change in net position was $(254.4) million compared to $173.1 million for FY 2015. Primarily contributing to the decrease were the factors mentioned above affecting net income and the FY 2016 noncash impairment loss recorded as an extraordinary item. FY 2015 – Net income of $114.3 million was $107.1 million more than the net income in FY 2014 of $7.2 million. Contributing to the variance were higher revenues from increased wholesale and distribution gas volumes as a result of the colder weather in the first quarter of FY 2015. In addition, wholesale margins were strong in FY 2015 and there were fewer unplanned plant outages. FY 2015 revenues also reflected the impact of the 2014 base rate increase that was effective beginning in February. Offsetting the stronger revenues were increases in both CPS Energy O&M costs and City payment.

See accompanying independent auditors’ report.

13

CPS Energy FY 2016 Annual Report Other payments to the City totaled $15.3 million in FY 2015. This amount was $5.5 million lower than FY 2014 due to the resolution of a receivable related to the Rio Nogales plant in the prior year that impacted the FY 2014 other payment amounts to the City. Contributed capital of $43.7 million was $3.6 million higher than in FY 2014. Contributing to the increase were $3.2 million in contributed capital for the portion of the Dry Cask Storage Project capital costs to be reimbursed by the DOE, an increase of $1.7 million in completed projects and an increase of $0.7 million in LED streetlight funding. The increases were partially offset by a $2.0 million decrease in donated assets for FY 2015. The gain on the lease/leaseback termination included $50.4 million from the recognition of the unamortized net lease revenue from the original transaction, with an offsetting reduction of $7.0 million from the recognition of the corresponding unamortized City payment. Due to the termination of the CIED Fund program, there were no distributions to the suburban cities in FY 2015. CIED distributions to the suburban cities were completed in FY 2014, with $3.4 million in payments made in that period. The effect of the STP defined benefit plan funding obligations, which represents 40% of the change in the unfunded pension and other post-retirement benefits liability at STP, was $(13.0) million compared to $39.1 million last year, reflecting a net change of $52.1 million resulting from the recalculated funded status of the STP pension and OPEB liabilities, partially offset by the remeasurement of retiree medical benefit obligations. CPS Energy’s change in net position was $173.1 million in FY 2015 compared to $62.2 million in FY 2014, reflecting an increase of $110.9 million. Primarily contributing to the increase were the factors mentioned above for the variance in net income, as well as the noncash net gain on the lease/leaseback termination and the change in the STP pension and OPEB liabilities.

See accompanying independent auditors’ report.

14

CPS Energy FY 2016 Annual Report

FINANCIAL POSITION Statements of Net Position Summary (Dollars in thousands) January 31, 2015

2016 Assets Current assets Noncurrent assets Restricted Other noncurrent assets Capital assets, net Total assets

$

856,639

Liabilities Current liabilities Long-term debt, net Other noncurrent liabilities Total liabilities

$

890,652

1,326,136 450,217 7,952,924 10,597,370

1,206,314 803,195 7,817,280 10,717,441

196,734

168,745

162,305

2016 vs. 2015 $

2015 vs. 2014

(11,454)

-1.3%

175,734 10,802 (175,419) (337)

13.3% 2.4% -2.2% -

27,989

16.6%

$

(22,559)

-2.5%

119,822 (352,978) 135,644 (120,071)

9.9% -43.9% 1.7% -1.1%

6,440

4.0%

$

10,793,767

$

10,766,115

$

10,879,746

$

27,652

0.3%

$

(113,631)

-1.0%

$

569,487 5,870,328 972,096 7,411,911

$

551,444 5,591,381 997,456 7,140,281

$

544,993 5,545,213 1,389,714 7,479,920

$

18,043 278,947 (25,360) 271,630

3.3% 5.0% -2.5% 3.8%

$

6,451 46,168 (392,258) (339,639)

1.2% 0.8% -28.2% -4.5% 326.3%

Deferred inflows of resources Total liabilities plus deferred inflows of resources Net position Net investment in capital assets Restricted Unrestricted Total net position Total liabilities plus deferred inflows of resources plus net position

868,093

1,501,870 461,019 7,777,505 10,597,033

Deferred outflows of resources Total assets plus deferred outflows of resources

$

Change 2014

$

79,513

69,070

16,201

10,443

15.1%

52,869

7,491,424

7,209,351

7,496,121

282,073

3.9%

(286,770)

-3.8%

1,722,692 974,402 605,249 3,302,343

2,187,922 778,655 590,187 3,556,764

2,091,074 700,489 592,062 3,383,625

(465,230) 195,747 15,062 (254,421)

-21.3% 25.1% 2.6% -7.2%

96,848 78,166 (1,875) 173,139

4.6% 11.2% -0.3% 5.1%

(113,631)

-1.0%

10,793,767

$

10,766,115

$

10,879,746

$

27,652

0.3%

$

Current Assets FY 2016 – Current assets at January 31, 2016, of $856.6 million were $11.5 million lower than the balance at January 31, 2015, due to decreases of $25.9 million in the General Fund, $11.2 million in customer accounts receivable, $4.8 million in current miscellaneous receivables and $4.6 million in gas inventory. These decreases were partially offset by increases of $18.5 million in coal inventory due to lower coal generation as a result of plant outages, $11.2 million in current prepayments for cash collateral and service agreement requirements, $2.8 million in insurance cash reserves, and $2.3 million in customer deposits. FY 2015 – Current assets at January 31, 2015, of $868.1 million were $22.6 million lower than the balance at January 31, 2014. Customer accounts receivable decreased $22.1 million primarily driven by a decrease of $18.3 million in unbilled receivables. Lease prepayments decreased $19.8 million due to the termination of the lease/leaseback transaction related to the Spruce 1 property. Additionally, prepayments decreased $9.0 million and miscellaneous receivables decreased $4.7 million compared to the prior year. These decreases were partially offset by a coal inventory increase of $24.1 million and an increase of $10.0 million in the General Fund.

Noncurrent Restricted Assets FY 2016 – Noncurrent restricted assets totaled $1,501.9 million at January 31, 2016, an increase of $175.7 million compared to January 31, 2015. The overall variance was largely attributable to increases of $184.5 million in the Capital Projects Fund resulting from bond proceeds of $457.9 million in See accompanying independent auditors’ report.

15

CPS Energy FY 2016 Annual Report December 2015, partially offset by $274.7 million in year-to-date construction funding and $6.8 million in the Repair and Replacement Account. These increases were partially offset by a decrease of $16.6 million in the Decommissioning Trusts balances due to a reduction in the cash collateral account. FY 2015 – Noncurrent restricted assets totaled $1,326.1 million at January 31, 2015, an increase of $119.8 million, compared to January 31, 2014. The overall variance was largely attributable to increases of $77.2 million in the Repair and Replacement Account primarily due to higher revenues and an increase of $42.7 million in the Decommissioning Trusts balances resulting from investment earnings.

Other Noncurrent Assets FY 2016 – Other noncurrent assets increased to $461.0 million at January 31, 2016, from $450.2 million at January 31, 2015. The $10.8 million change reflects increases of $14.3 million in the net OPEB obligation due to increased funding contributions in FY 2016, offset by normal annual OPEB costs; $3.9 million in STEP net costs recoverable; and $2.0 million in unamortized bond expense. These increases were partially offset by decreases of $5.3 million in the pension regulatory asset and $4.0 million in noncurrent prepayments and other. FY 2015 – Other noncurrent assets decreased to $450.2 million at January 31, 2015, from $803.2 million at January 31, 2014. The $353.0 million change reflects a decrease of $338.1 million in prepaid lease expense and a decrease of $6.6 million for related advanced City payment due to the termination of the Spruce 1 lease/leaseback transaction, and decreases of $5.4 million in the net OPEB obligation, $5.3 million in the net pension regulatory asset and $2.6 million in noncurrent prepayments. These decreases were partially offset by an increase of $3.6 million in STEP net costs recoverable.

Deferred Outflows of Resources FY 2016 – Deferred outflows of resources increased $28.0 million, from $168.7 million at January 31, 2015, to $196.7 million at January 31, 2016, primarily due to an increase of $19.4 million in deferred outflows related to pension and $8.1 million in unrealized losses on fuel hedges. The increase in deferred outflows related to pension was primarily due to the effect of changes in actuarial assumptions. For more information on deferred outflows of resources, see Note 1 – Summary of Significant Accounting Policies. FY 2015 – Deferred outflows of resources increased $6.4 million, from $162.3 million at January 31, 2014, to $168.7 million at January 31, 2015, primarily due to a $28.8 million increase in unrealized losses on fuel hedges, partially offset by a $14.6 million decrease in unamortized debt reacquisition costs and a $7.8 million decrease in deferred outflows related to pensions.

See accompanying independent auditors’ report.

16

CPS Energy FY 2016 Annual Report

Capital Assets, Net Summary of Capital Assets Net of Accumulated Depreciation and Amortization (Dollars in thousands) 2016 Nondepreciable assets Land Land easements Construction-in-progress Total nondepreciable assets Depreciable/amortizable assets Electric plant Buildings and structures Systems and improvements Total electric plant

$

71,164 88,699 484,239 644,102

January 31, 2015 $

71,154 88,699 785,333 945,186

Change 2014 $

69,279 88,633 668,985 826,897

2016 vs. 2015 $

2015 vs. 2014

10 (301,094) (301,084)

-38.3% -31.9%

$

1,875 66 116,348 118,289

2.7% 0.1% 17.4% 14.3%

586,649 5,334,072 5,920,721

625,286 5,279,217 5,904,503

652,067 5,260,481 5,912,548

(38,637) 54,855 16,218

-6.2% 1.0% 0.3%

(26,781) 18,736 (8,045)

-4.1% 0.4% -0.1%

Gas plant Buildings and structures Systems and improvements Total gas plant

94 521,088 521,182

96 494,073 494,169

99 472,097 472,196

(2) 27,015 27,013

-2.1% 5.5% 5.5%

(3) 21,976 21,973

-3.0% 4.7% 4.7%

General plant Buildings and structures Machinery and equipment Other Total general plant

170,060 282,022 4,068 456,150

147,199 236,001 4,253 387,453

146,349 222,775 4,438 373,562

22,861 46,021 (185) 68,697

15.5% 19.5% -4.3% 17.7%

850 13,226 (185) 13,891

0.6% 5.9% -4.2% 3.7%

Intangibles Software Other Total intangibles

104,553 24,386 128,939

87,005 25,414 112,419

91,563 26,433 117,996

17,548 (1,028) 16,520

20.2% -4.0% 14.7%

(4,558) (1,019) (5,577)

-5.0% -3.9% -4.7%

Nuclear fuel

106,411

109,194

114,081

(2,783)

-2.5%

(4,887)

-4.3%

7,133,403

7,007,738

6,990,383

1.8%

17,355

0.2%

$ 7,777,505

$ 7,952,924

$ 7,817,280

135,644

1.7%

Total depreciable/ amortizable assets Total capital assets, net

125,665 $ (175,419)

-2.2%

$

FY 2016 – At January 31, 2016, net capital assets of $7,777.5 million decreased $175.4 million from $7,952.9 million at January 31, 2015. The decrease was primarily due to the STP Units 3 and 4 write-off of $391.4 million in construction-in-progress, partially offset by an increase of $90.3 million in other construction-in-progress activity. Total depreciable/amortizable assets increased $125.7 million as a result of new capital assets being placed into service. Of the total plant-in-service and construction-in-progress additions, $625.8 million related to new construction and net removal costs. These additions included funding with $274.7 million of debt, $42.7 million from contributed capital and $308.5 million from the Repair and Replacement Account. Included in capital assets are CPS Energy’s 40% interest in STP Units 1 and 2. FY 2015 – At January 31, 2015, net capital assets of $7,952.9 million increased $135.6 million from $7,817.3 million at January 31, 2014. The increase was primarily due to a $116.3 million increase in the construction-in progress component of total nondepreciable assets. Total depreciable/amortizable assets increased $17.4 million. Of the total plant-in-service and construction-in-progress additions, $532.2 million related to new construction and net removal costs. Funding sources for these additions included $232.0 million of debt, $39.2 million of contributed capital and $260.9 million from the Repair and Replacement Account.

See accompanying independent auditors’ report.

17

CPS Energy FY 2016 Annual Report

Current Liabilities FY 2016 – Excluding current maturities of debt of $185.2 million, current liabilities increased $7.3 million, from $377.0 million at January 31, 2015, to $384.3 million at January 31, 2016. The higher balance was primarily due to increases of $29.4 million in accounts payable and accrued liabilities and $4.5 million in current customer advances for construction reclassified from noncurrent advances. These increases were partially offset by decreases of $19.9 million in STP operating, maintenance and construction payables and $5.7 million payable to the City. FY 2015 – Excluding current maturities of debt of $174.5 million, current liabilities increased $14.2 million, from $362.8 million at January 31, 2014, to $377.0 million at January 31, 2015. The higher balance was primarily due to increases of $18.8 million in accounts payable and accrued liabilities. This increase was partially offset by a $5.5 million decrease in the current decommissioning liability.

Other Noncurrent Liabilities FY 2016 – Excluding the noncurrent portion of debt of $5,870.3 million, noncurrent liabilities decreased $25.4 million to $972.1 million at January 31, 2016, primarily due to decreases of $14.1 million in STP decommissioning net costs refundable, $9.1 million in the STP OPEB and pension liabilities, $7.3 million in noncurrent customer advances for construction and $4.7 million in the STP decommissioning liability. These decreases were partially offset by increases of $6.5 million in other liabilities, $2.8 million in operating reserves and $1.2 million in noncurrent customer deposits. FY 2015 – Excluding the noncurrent portion of debt of $5,591.4 million, noncurrent liabilities decreased $392.3 million to $997.5 million at January 31, 2015, primarily due to decreases of $385.4 million in noncurrent lease unearned revenue resulting from the termination of the lease/leaseback transaction related to the Spruce 1 property and $77.7 million in the net pension liability. These decreases were partially offset by increases of $27.4 million in the noncurrent decommissioning liability, $19.7 million in STP decommissioning net costs refundable and $14.9 million in other noncurrent liabilities.

Deferred Inflows of Resources FY 2016 – Deferred inflows of resources increased $10.4 million, from $69.1 million at January 31, 2015, to $79.5 million at January 31, 2016, primarily due to an increase of $11.2 million in deferred inflows related to pension. FY 2015 – Deferred inflows of resources increased $52.9 million, from $16.2 million at January 31, 2014, to $69.1 million at January 31, 2015, primarily due to an increase of $54.1 million in deferred inflows related to pension. Partially offsetting this increase was a decrease of $1.2 million in the deferred income recognized as part of the FY 2014 communication towers sale transaction.

FINANCING AND DEBT COVENANTS COMPLIANCE Long-Term Debt (Excluding Commercial Paper) FY 2016 – At January 31, 2016, CPS Energy’s total debt was $5,408.4 million, excluding commercial paper, the FRRN, discounts and premiums. This long-term debt was composed of $4,816.0 million in fixedinterest-rate instruments and $592.4 million in variable-interest-rate instruments. Fixed-interest-rate long-term debt had an overall weighted-average yield of 4.3%. Separately, the variable-rate bonds had a weighted-average yield of 1.6%. See accompanying independent auditors’ report.

18

CPS Energy FY 2016 Annual Report Issuances – On August 13, 2015, CPS Energy issued $320.5 million of New Series 2015 Senior Lien Revenue Refunding Bonds. Proceeds, including the $43.3 million premium associated with the bonds, were used to refund $339.5 million par value of the Series 2007 Revenue Bonds. The refunding transaction resulted in a net present value debt service savings of $36.9 million, or 10.87% of the par amount of the bonds being refunded. The true interest cost for this issue, which has maturities in 2018 through 2032, is 2.99%. On December 1, 2015, CPS Energy remarketed $47.7 million of Series 2012B Variable-Rate Junior Lien Revenue Refunding Bonds. The issuance of a $0.5 million premium, in conjunction with the remarketing, resulted in a principal paydown for the remarketed bonds of approximately $0.2 million. The bonds have maturities in 2024 through 2027. The coupon rate for these bonds is 1.8%, with a current yield of 1.41% and true interest cost of 5.79%, which reflects stepped interest rate provisions applicable to the bonds. On December 3, 2015, CPS Energy issued $235.0 million of New Series 2015 Fixed-Rate Revenue Bonds, including a premium of $12.9 million. The true interest cost for these issues, which have maturities in 2026 through 2039, is 3.48%. The bonds were issued with coupon rates varying from 3% to 5%. Bond proceeds are primarily being used to fund construction projects. Also on December 3, 2015, CPS Energy issued $200.0 million of Variable-Rate Junior Lien Revenue Bonds, $100.0 million each of Series 2015C and Series 2015D, including a total premium of $12.9 million. Reflecting stepped interest rate provisions applicable to the bonds, the true interest cost for these bonds, which have maturities in 2038 through 2045, is 6.26% for the Series 2015C bonds and 5.99% for the Series D bonds. The bonds were issued as multi-modal variable-rate instruments with initial term rates of 3% and a stepped rate of 8%, which is only applicable if the bonds are not remarketed before their respective expiration dates. Bond proceeds are primarily being used to fund construction projects. Reductions – CPS Energy made principal payments of $149.3 million in FY 2016.

Summary of Debt Rollforward Activity1 (In thousands) Balance Outstanding February 1, 2015 $

5,141,760

Additions During Year $

Decreases During Year

803,180

$

(536,575)

Balance Outstanding January 31, 2016 $

5,408,365

1

Excludes commercial paper, the FRRN, discounts and premiums.

FY 2015 – At January 31, 2015, CPS Energy’s total debt was $5,141.8 million, excluding commercial paper, the FRRN, discounts and premiums. This long-term debt was composed of $4,749.2 million in fixedinterest-rate instruments and $392.6 million in variable-interest-rate instruments. Fixed-interest-rate long-term debt had an overall weighted-average yield of 4.3%. Separately, the variable-rate bonds had a weighted-average yield of 1.0%. Issuances – On July 3, 2014, CPS Energy issued $200.0 million of Series 2014 Junior Lien Revenue Bonds. The true interest cost for this issue, which has maturities in 2026 through 2044, is 4.14%. Bond proceeds were primarily used to fund construction projects. On November 5, 2014, CPS Energy issued $262.5 million of Series 2014 Junior Lien Revenue Refunding Bonds. Proceeds, including the $37.3 million premium associated with the bonds, were used to refund the $294.6 million par value of the 2005 Revenue Bonds. The refunding transaction resulted in a net present value debt service savings of $36.0 million, or 12.21% of the par amount of the bonds being refunded. The true interest cost for this issue, which has maturities in 2016 through 2020, is 1.22%.

See accompanying independent auditors’ report.

19

CPS Energy FY 2016 Annual Report On December 1, 2014, CPS Energy remarketed $47.1 million of the Series 2012A Variable-Rate Junior Lien Revenue Refunding Bonds. The issuance of a $1.3 million premium in conjunction with the remarketing resulted in a principal paydown for the remarketed bonds of approximately $1.0 million. The bonds have maturities in 2024 through 2027. The coupon rate for these bonds is 2.0%, with a current yield of 1.27%. On January 7, 2015, CPS Energy issued $125.0 million in Series 2015A Variable-Rate Junior Lien Revenue Refunding Bonds and $125.0 million in Series 2015B Variable-Rate Junior Lien Revenue Refunding Bonds. Proceeds were used to refund the $250.0 million par value of the 2003 Junior Lien Variable-Rate Demand Obligations. The bonds were issued as multi-modal variable-rate instruments issued initially in a Securities Industry and Financial Markets Association (“SIFMA”) Index Mode with an applicable spread of 0.28% and 0.38% through their term rate periods of 2017 and 2018, and at a stepped rate of 8.0% for each series thereafter through applicable final maturity. The stepped rate is applicable only if the bonds are not remarketed before their respective expiration dates. Reductions – CPS Energy made principal payments of $157.0 million in FY 2015.

Summary of Debt Rollforward Activity1 (In thousands) Balance Outstanding February 1, 2014 $

Additions During Year

5,131,925

$

Balance Outstanding January 31, 2015

Decreases During Year

759,665

$

(749,830)

$

5,141,760

1

Excludes commercial paper, the FRRN, discounts and premiums.

Allocation of Debt at January 31, 2016

2015 7.6%

11.0%

89.0%

92.4%

Fixed-Rate Instruments

Variable-Rate Instruments

Note: Graphs exclude commercial paper and the FRRN.

Commercial Paper CPS Energy maintains a commercial paper program to provide taxable and tax-exempt financing for various purposes. In 1988, the San Antonio City Council adopted an ordinance authorizing the issuance of up to $300 million in tax-exempt commercial paper. The current ordinances allow for the issuance of three separate series of commercial paper to provide funding to assist in the interim financing of eligible

See accompanying independent auditors’ report.

20

CPS Energy FY 2016 Annual Report projects in an aggregate amount not to exceed $600 million to the extent of support from liquidity facilities. Effective June 26, 2013, there was a total of $600 million in liquidity support. The ordinances allow for the issuance of taxable commercial paper, as well as tax-exempt commercial paper. Eligible projects include fuel acquisition, capital improvements to the Systems, and refinancing or refunding any outstanding obligations, which are secured by and payable from a lien and/or a pledge of net revenues of the Systems. Such pledge of net revenues is subordinate and inferior to the pledge securing payment of existing New Series Bonds (senior lien obligations) and Series Bonds (junior lien obligations). Scheduled maximum maturities cannot extend beyond November 1, 2042. The commercial paper has been classified as long-term in accordance with the refinancing terms under three revolving credit agreements with a consortium of banks, which support the commercial paper program. The Series A agreement, which provides $150 million in liquidity support for the Series A Notes, is effective February 7, 2014, through February 6, 2017. The Series B agreement, which provides $225 million in liquidity support for the Series B Notes, is effective June 26, 2013, through June 24, 2016. The Series C agreement, which provides $225 million in liquidity support for the Series C Notes, is effective June 26, 2013, through June 23, 2017. Under the terms of these revolving credit agreements, CPS Energy may borrow up to an aggregate amount not to exceed $600 million for the purpose of paying principal due under the commercial paper program. At January 31, 2016, there was no amount outstanding under the revolving credit agreements. Further, there have been no borrowings under the agreements since inception of the program. FY 2016 –There were no commercial paper issuances or reductions in FY 2016. At January 31, 2016, the outstanding commercial paper balance was $360.0 million, all of which was issued as tax-exempt.

Summary of Commercial Paper Rollforward Activity (In thousands) Balance Outstanding February 1, 2015 $

360,000

Additions During Year $

Balance Outstanding January 31, 2016

Decreases During Year -

$

-

$

360,000

FY 2015–There were no commercial paper issuances or reductions in FY 2015. At January 31, 2015, the outstanding commercial paper balance was $360.0 million, all of which was issued as tax-exempt.

Summary of Commercial Paper Rollforward Activity (In thousands) Balance Outstanding February 1, 2014 $

360,000

Additions During Year $

Balance Outstanding January 31, 2015

Decreases During Year -

$

-

$

360,000

The weighted-average interest rate on outstanding commercial paper was 0.1% at January 31, 2016, and January 31, 2015. The weighted-average maturity of commercial paper at January 31, 2016, and January 31, 2015, was 70 and 90 days, respectively.

Flexible Rate Revolving Note CPS Energy maintains an FRRN private placement program to provide taxable and tax-exempt financing to assist in the interim funding of eligible projects in an aggregate amount not to exceed the currently

See accompanying independent auditors’ report.

21

CPS Energy FY 2016 Annual Report effective limit of $26 million. The FRRN has been classified as short-term in accordance with the financing terms under the Note Purchase Agreements. See Note 8 – Flexible Rate Revolving Note. FY 2016 – There were no note issuances or reductions under the FRRN program during FY 2016. At January 31, 2016, the outstanding FRRN balance was $25.2 million. FY 2015 – There were no note issuances or reductions under the FRRN program during FY 2015. At January 31, 2015, the outstanding FRRN balance was $25.2 million.

Compliance With respect to all New Series Bonds outstanding at January 31, 2016, the net revenues of the Systems are pledged to the payment of principal and interest thereon. All New Series Bonds are issued as senior lien obligations, and the principal and interest thereon have a first lien upon the net revenues of CPS Energy’s Systems. The Series 2010A and 2010B Junior Lien BABs; the Series 2012A, 2012B and 2012C Variable-Rate Junior Lien Revenue Refunding Bonds; the Series 2013 and Series 2014 Junior Lien Revenue Bonds; the Series 2015A and 2015B Variable-Rate Junior Lien Revenue Refunding Bonds; and the Series 2015C and 2015D Variable-Rate Junior Lien Revenue Bonds were issued as junior lien obligations. The borrowings from the junior lien obligations are equally and ratably secured by and payable from the net revenues of CPS Energy’s Systems. The pledge is subordinate and inferior to the pledge of net revenues securing the senior lien obligations, but prior and superior to the lien on, and pledge of, the net revenues securing the payment of the commercial paper notes. The commercial paper revolving credit agreements permit CPS Energy to borrow up to an aggregate amount, not to exceed $600 million, for the purpose of paying amounts due under the commercial paper program. The commercial paper outstanding is also secured by the net revenues of the Systems. Such pledge of net revenues is subordinate and inferior to the pledge securing payment of senior lien and junior lien obligations. Under the terms of the current FRRN purchase agreement, the credit facility is taxable to the full extent of the current $26 million limit on outstanding principal. The outstanding notes are secured by collateral pledged in the form of investments and a limited, subordinate and inferior lien on and pledge of net revenues in the amount of $0.1 million. At January 31, 2016, and January 31, 2015, CPS Energy was in compliance with the terms and provisions of the documents related to the senior and junior lien obligations, and the commercial paper and FRRN programs.

Debt Service CPS Energy has taken the position that the BABs direct subsidy should be deducted from debt service when calculating the debt service coverage ratio since the subsidy is received directly by the trustee and is to be used solely for debt service. Therefore, at January 31, 2016, the debt service coverage calculations included a BABs direct subsidy deduction of $14.5 million for the senior lien debt and $24.3 million for both the senior and junior lien debt. At January 31, 2015, the debt service coverage calculations included a BABs direct subsidy deduction of $14.5 million for the senior lien debt and $24.2 million for both the senior and junior lien debt. BABs Subsidy Sequestration – Pursuant to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, the federal government reduced the BABs subsidy by 8.7% for payments

See accompanying independent auditors’ report.

22

CPS Energy FY 2016 Annual Report made during the period beginning March 1, 2013, through the end of their fiscal year ended September 30, 2013. The federal government reduced the BABs subsidy by 7.2% for payments made during the period beginning October 1, 2013, through September 30, 2014. The subsidy was reduced by 7.3% for payments made during the period October 1, 2014, through September 30, 2015. For payments made during the period October 1, 2015, through September 30, 2016, the subsidy is being reduced by 6.8%. The subsidy reductions resulted in an increase in CPS Energy’s debt-related interest expense of approximately $1.8 million for FY 2016. The following table illustrates the debt service coverage ratios in accordance with the bond ordinances and also provides the ratios without the direct subsidy deduction:

Debt Service Coverage Ratios at January 31, 2016

Senior lien debt Senior and junior lien debt

With BABs Subsidy 3.67x 2.74x

Without BABs Subsidy 3.49x 2.58x

Debt Service Coverage Ratios at January 31, 2015

Senior lien debt Senior and junior lien debt

With BABs Subsidy 3.15x 2.73x

Without BABs Subsidy 3.02x 2.57x

The ratio of debt to debt and net position was 63.7% at January 31, 2016, and 60.8% at January 31, 2015. Disregarding the FY 2016 noncash write-off of CPS Energy’s investment in STP Units 3 and 4, the ratio of debt to debt and net position at January 31, 2016, would have been 61.1%.

Summary of CPS Energy’s Bond and Commercial Paper Ratings

Fitch Ratings Moody's Investors Service, Inc. Standard & Poor's Ratings Services

Ratings at January 31, 2016 Commercial Senior Lien Debt Junior Lien Debt Paper AA+ AA+ F1+ Aa1 Aa2 P-1 AA AAA-1+

CURRENTLY KNOWN FACTS GASB Implementations – The following guidance issued by the GASB will be effective for future periods: x GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, replaces Statements No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plan, as they relate to certain OPEB plans that are administered through trusts

See accompanying independent auditors’ report.

23

CPS Energy FY 2016 Annual Report or equivalent arrangements. This standard will be implemented in their fiscal years ending December 31, 2017, by the CPS Energy-sponsored OPEB trusts. x GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, replaces the requirements of Statements No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans, for OPEB. This Statement establishes new accounting and financial reporting requirements for governments whose employees are provided with OPEB, including the recognition and measurement of liabilities, deferred outflows of resources, deferred inflows of resources and expense. For each qualifying plan providing postemployment benefits other than pensions, employers are required to report the difference between the actuarial OPEB liability and the related plan’s fiduciary net position as net OPEB liability on the statement of net position. Previously, a liability was recognized only to the extent that contributions made to each plan were exceeded by the actuarially calculated contributions for those plans. Additionally, Statement No. 75 sets forth note disclosure and required supplementary disclosure requirements for defined contribution OPEB. This standard will be adopted by CPS Energy in FY 2018. The Company has initiated an evaluation of the impact that adoption of this Statement will have on its financial statements. x GASB Statement No. 77, Tax Abatement Disclosures, provides financial disclosure requirements for governments that enter into tax abatement agreements. This statement indicates how disclosures for tax abatements should be organized and what descriptive information, including commitments made by the entity, should be presented. This standard will be adopted in FY 2018. Because CPS Energy is not a tax-levying government and is not a party to tax abatement agreements, there is no expected impact on the financial statements. x GASB Statement No. 78, Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans, clarifies requirements for the application of GASB Statement No. 68, Accounting and Financial Reporting for Pensions, for certain governments whose employees receive pension benefits through multiple-employer plans. As CPS Energy does not sponsor benefits through the type of plan addressed by this statement, the guidance is not applicable and will have no impact on the Company’s financial reporting. x GASB Statement No. 80, Blending Requirements for Certain Component Units – an amendment of GASB Statement No. 14, amends the blending requirements for the financial statement presentation of certain component units. The additional criterion requires blending of a component unit incorporated as a not-for-profit corporation in which the primary government is the sole corporate member. The additional criterion does not apply to component units included in the financial reporting entity pursuant to the provisions of GASB Statement No. 39, Determining Whether Certain Organizations Are Component Units. This standard will be effective for CPS Energy in FY 2018. The Company is evaluating the expected impact. Legislation and Regulations – The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") was signed into law on July 21, 2010. Title VII of the Dodd-Frank Act, known as the "Wall Street Transparency and Accountability Act of 2010," substantially modified portions of the Commodity Exchange Act with respect to swap transactions. The law is designed to reduce risk, establish new business conduct rules, increase transparency and promote market integrity within the financial system. The Dodd-Frank Act gives the Commodity Futures Trading Commission ("CFTC") and the Securities and Exchange Commission (“SEC”) statutory authority to regulate the over-the-counter derivatives market, including many of the commodities that are currently being traded or hedged by CPS Energy in accordance with its own policies and procedures. CPS Energy is subject to some of the CFTC and SEC rules, including swap transaction reporting and recordkeeping, in addition to other

See accompanying independent auditors’ report.

24

CPS Energy FY 2016 Annual Report administrative rules and regulations, such as the Independent Registered Municipal Advisor rule that impacts capital market participants. As an “end-user,” CPS Energy is exempt from clearing and margining its positions. In September 2014, the CFTC issued a final rule, making permanent provisions contained in a “no-action” letter issued in March 2014, which exempts swap dealing activity for operations-related swaps with special entities, including public utilities, from a sub-threshold measurement used to determine when an entity is required to register as a swap dealer. The CFTC and SEC remain in the process of proposing new rules pursuant to the legislation. Other key elements of the Dodd-Frank Act, including new rules pertaining to capital requirements and public funds collateralization, pertinent to CPS Energy’s situation remain unresolved. Consequently, the overall impact on CPS Energy continues to remain uncertain at this time. The Patient Protection and Affordable Healthcare Act (“PPACA”) was signed into law on March 23, 2010. CPS Energy has developed a long-term strategy to address potential increases in costs associated with the health plan benefits it provides to its employees. The Company continues to monitor the PPACA regulations as they evolve, as well as the status of the CPS Energy employee health plans, to ensure compliance with all PPACA regulations while maintaining manageable plan costs for the Company and its employees. There are several pending federal environmental regulations which could affect CPS Energy – a new Cross-State Air Pollution Rule requiring a reduction in ozone season nitrogen oxide emissions and the Environmental Protection Agency’s (“EPA”) Proposed Federal Plan for the Clean Power Plan (“CPP"). On February 9, 2016, the Supreme Court granted the applications of numerous parties to put a hold on the EPA’s CPP rule, pending judicial review. The stay will remain in effect pending Supreme Court review, which is scheduled for June 2, 2016. While these rules are still being defined, CPS Energy is continually monitoring the requirements of each to assess the impact to the Company and is making plans for maintaining compliance with each of the pending regulations. The Generation Sector Industrial Effluent Guidelines, the National Ambient Air Quality Standards for Ozone and the Mercury Air Toxics Standards were finalized in 2015. The Clean Water Act 316b rules and the Coal Combustion Residual Rule were finalized in 2014. CPS Energy is evaluating the regulations and is formulating its plan for maintaining compliance with the rules. Federal Budget Developments – As Congressional lawmakers continue to look for ways to reduce the federal deficit, elimination or capping the tax exemption on municipal bond interest has been one item under consideration. CPS Energy’s management continues to assess the multiple versions of proposals on the subject and to offer commentary and information to the national discussion on this issue. Uncertainty remains regarding the impact any resulting legislation might ultimately have on the taxexempt status of CPS Energy’s bonds.

REQUESTS FOR INFORMATION For more information about CPS Energy, contact Public Affairs & Brand Management at 210-353-2344 or at P.O. Box 1771, San Antonio, Texas 78296-1771.

See accompanying independent auditors’ report.

25

,1'(3(1'(17$8',7256 5(3257    7RWKH%RDUGRI7UXVWHHV &LW\3XEOLF6HUYLFHRI6DQ$QWRQLR7H[DV 6DQ$QWRQLR7H[DV  Report on the Financial Statements  :HKDYHDXGLWHGWKHDFFRPSDQ\LQJILQDQFLDOVWDWHPHQWVRI&LW\3XEOLF6HUYLFHRI6DQ$QWRQLR7H[DV (“&36Energy”)DFRPSRQHQWXQLWRIWKH&LW\RI6DQ$QWRQLR7H[DVDVRIDQGIRUWKH\HDUVHQGHG-DQXDU\ DQGDQGWKHUHODWHGQRWHVWRWKHILQDQFLDOVWDWHPHQWVZKLFKFROOHFWLYHO\FRPSULVH&36(QHUJ\’s EDVLFILQDQFLDOVWDWHPHQWVDVOLVWHGLQWKHWDEOHRIFRQWHQWV  Management’s Responsibility for the Financial Statements 0DQDJHPHQWLVUHVSRQVLEOHIRUWKHSUHSDUDWLRQDQGIDLUSUHVHQWDWLRQRIWKHVHILQDQFLDOVWDWHPHQWVLQ DFFRUGDQFHZLWKDFFRXQWLQJSULQFLSOHVJHQHUDOO\DFFHSWHGLQWKH8QLWHG6WDWHVRI$PHULFDWKLVLQFOXGHVWKH GHVLJQLPSOHPHQWDWLRQDQGPDLQWHQDQFHRILQWHUQDOFRQWUROUHOHYDQWWRWKHSUHSDUDWLRQDQGIDLUSUHVHQWDWLRQRI ILQDQFLDOVWDWHPHQWVWKDWDUHIUHHIURPPDWHULDOPLVVWDWHPHQWZKHWKHUGXHWRIUDXGRUHUURU  Auditors’ Responsibility  2XUUHVSRQVLELOLW\LVWRH[SUHVVDQRSLQLRQRQWKHVHILQDQFLDOVWDWHPHQWVEDVHGRQRXUDXGLWV:HFRQGXFWHG RXUDXGLWVLQDFFRUGDQFHZLWKDXGLWLQJVWDQGDUGVJHQHUDOO\DFFHSWHGLQWKH8QLWHG6WDWHVRI$PHULFD7KRVH VWDQGDUGVUHTXLUHWKDWZHSODQDQGSHUIRUPWKHDXGLWWRREWDLQUHDVRQDEOHDVVXUDQFHDERXWZKHWKHUWKH ILQDQFLDOVWDWHPHQWVDUHIUHHIURPPDWHULDOPLVVWDWHPHQW  $QDXGLWLQYROYHVSHUIRUPLQJSURFHGXUHVWRREWDLQDXGLWHYLGHQFHDERXWWKHDPRXQWVDQGGLVFORVXUHVLQWKH financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of WKHULVNVRIPDWHULDOPLVVWDWHPHQWRIWKHILQDQFLDOVWDWHPHQWVZKHWKHUGXHWRIUDXGRUHUURU,QPDNLQJWKRVH ULVNDVVHVVPHQWVWKHDXGLWRUFRQVLGHUVLQWHUQDOFRQWUROUHOHYDQWWRCPS Energy’sSUHSDUDWLRQDQGIDLU SUHVHQWDWLRQRIWKHILQDQFLDOVWDWHPHQWVLQRUGHUWRGHVLJQDXGLWSURFHGXUHVWKDWDUHDSSURSULDWHLQWKH FLUFXPVWDQFHVEXWQRWIRUWKHSXUSRVHRIH[SUHVVLQJDQRSLQLRQRQthe effectiveness of CPS Energy’sLQWHUQDO FRQWURO$FFRUGLQJO\ZHH[SUHVVQRVXFKRSLQLRQ$QDXGLWDOVRLQFOXGHVHYDOXDWLQJWKHDSSURSULDWHQHVVRI DFFRXQWLQJSROLFLHVXVHGDQGWKHUHDVRQDEOHQHVVRIVLJQLILFDQWDFFRXQWLQJHVWLPDWHVPDGHE\PDQDJHPHQWDV ZHOODVHYDOXDWLQJWKHRYHUDOOSUHVHQWDWLRQRIWKHILQDQFLDOVWDWHPHQWV  :HEHOLHYHWKDWWKHDXGLWHYLGHQFHZHKDYHREWDLQHGLVVXIILFLHQWDQGDSSURSULDWHWRSURYLGHDEDVLVIRURXU DXGLWRSLQLRQ 

26

7RWKH%RDUGRI7UXVWHHV &LW\3XEOLF6HUYLFHRI6DQ$QWRQLR7H[DV Opinion  ,QRXURSLQLRQWKHILQDQFLDOVWDWHPHQWVUHIHUUHGWRDERYHSUHVHQWIDLUO\LQDOOPDWHULDOUHVSHFWVWKH ILQDQFLDOSRVLWLRQRI&36(QHUJ\DVRI-DQXDU\DQGDQGWKHUHVSHFWLYHFKDQJHVLQ ILQDQFLDOSRVLWLRQDQGFDVKIORZVWKHUHRIIRUWKH\HDUVWKHQHQGHGLQDFFRUGDQFHZLWKDFFRXQWLQJ SULQFLSOHVJHQHUDOO\DFFHSWHGLQWKH8QLWHG6WDWHVRI$PHULFD  Emphasis of Matter $VGLVFXVVHGLQ1RWHRIWKHQRWHVWRWKHILQDQFLDOVWDWHPHQWV&36(QHUJ\DGRSWHGWKHSURYLVLRQVRI *$6%6WDWHPHQW1RAccounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27DQG*$6%6WDWHPHQW1RPension Transition for Contributions Made Subsequent to the Measurement Date, an amendment of GASB Statement No. 68, HIIHFWLYH)HEUXDU\2XU RSLQLRQLVQRWPRGLILHGZLWKUHVSHFWWRWKLVPDWWHU  Other Matter Required Supplementary Information 

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

  

 6DQ$QWRQLR7H[DV $XVWLQ7H[DV $SULO 

27

CPS Energy FY 2016 Annual Report

STATEMENTS OF NET POSITION

January 31, 2016 2015 (In thousands)

Assets Current assets Cash and cash equivalents Investments Interest and other accounts receivable Customer accounts receivable, less allowance for doubtful accounts of $15.4 million at January 31, 2016, and $20.6 million at January 31, 2015 Inventories, at average costs Materials and supplies Fossil fuels Prepayments and other Total current assets

$

Noncurrent assets Restricted Cash and cash equivalents Investments Interest and other accounts receivable Pension regulatory asset Other noncurrent assets Capital assets, STP Units 3 and 4, construction-in-progress Capital assets (excluding STP Units 3 and 4), net Total noncurrent assets Total assets

157,501 179,910 30,693

$

213,070 145,150 35,250

224,324

235,476

101,742 108,746 53,723 856,639

101,709 94,961 42,477 868,093

306,561 1,174,613 20,696 255,793 205,226 7,777,505 9,740,394

285,180 1,027,391 13,565 261,122 189,095 391,417 7,561,507 9,729,277

10,597,033

10,597,370

93,202 37,920 65,612 196,734

73,770 29,793 65,182 168,745

Deferred outflows of resources Unrealized contributions and losses related to Pension Unrealized losses on fuel hedges Unamortized debt reacquisition costs Total deferred outflows of resources Total assets plus deferred outflows of resources

$

10,793,767

$

10,766,115

$

185,200 384,287 569,487

$

174,470 376,974 551,444

Liabilities Current liabilities Current maturities of debt Accounts payable and accrued liabilities Total current liabilities Noncurrent liabilities Long-term debt, net STP decommissioning STP decommissioning net costs refundable Net pension liability Other noncurrent liabilities Total noncurrent liabilities Total liabilities

5,870,328 415,858 110,780 266,355 179,103 6,842,424

5,591,381 420,587 124,907 266,760 185,202 6,588,837

7,411,911

7,140,281

75,006 4,507 79,513

63,783 5,287 69,070

7,491,424

7,209,351

1,722,692

2,187,922

13,692 960,710 605,249 3,302,343

12,736 765,919 590,187 3,556,764

Deferred inflows of resources Unrealized gains related to pension Sale of future revenue Total deferred inflows of resources Total liabilities plus deferred inflows of resources

Net position Net investment in capital assets Restricted Debt service Ordinance Unrestricted Total net position Total liabilities plus deferred inflows of resources plus net position See accompanying Notes to Basic Financial Statements.

28

$

10,793,767

$

10,766,115

CPS Energy FY 2016 Annual Report

STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Fiscal Year Ended January 31,

2016

2015 (In thousands)

Operating revenues Electric Retail Wholesale Total electric operating revenues Gas Total operating revenues

$

Operating expenses Fuel, purchased power and distribution gas STP operation and maintenance CPS Energy operation and maintenance Annual OPEB and pension costs Grant program expenditures Energy efficiency and conservation (STEP) STEP net costs recoverable Regulatory assessments STP decommissioning Depreciation and amortization Total operating expenses Operating income Nonoperating income (expense) Interest and other income, net Grant programs Decommissioning Trusts investment income and change in fair market value STP decommissioning net costs recoverable (refundable) Interest and other expense Amortization of debt-related costs Allowance for funds used during construction Payments to the City of San Antonio Total nonoperating income (expense)

2,096,569 223,436 2,320,005 175,300 2,495,305

$

789,134 142,471 371,811 56,372 44 62,884 (6,509) 66,965 17,714 410,228 1,911,114

910,136 141,538 368,392 54,115 31 58,977 (5,434) 79,334 22,532 395,788 2,025,409

584,191

604,268

20,083 44

27,331 31

1,787 14,127 (231,475) 21,602 9,928 (320,454) (484,358)

Income before other changes in net position

39,152 (19,739) (236,602) 14,257 6,504 (320,933) (489,999)

99,833

Other payments to the City of San Antonio Contributed capital Special item – gain on lease/leaseback termination Special item – City payment on lease/leaseback termination Extraordinary item – impairment loss Effect of defined benefit plan funding obligations – STP Change in net position Net position – beginning Net position – ending

$

See accompanying Notes to Basic Financial Statements.

 29

1,991,068 410,006 2,401,074 228,603 2,629,677

(11,601) 46,497 (391,417) 2,267 (254,421) 3,556,764 3,302,343

114,269

$

(15,285) 43,729 50,429 (7,015) (12,988) 173,139 3,383,625 3,556,764

CPS Energy FY 2016 Annual Report

Fiscal Year Ended January 31, 2016 2015 (In thousands)

STATEMENTS OF CASH FLOWS Cash flows from operating activities Cash received from customers Cash payments to suppliers for goods and services Cash payments to employees for service Net cash provided (used) by operating activities Cash flows from capital and related financing activities Cash paid for additions to utility plant and net removal costs Cash paid for nuclear fuel purchases Contributed capital Proceeds from issuance of revenue bonds Principal payments on revenue bonds and cash defeasance of debt Interest paid Debt issue and cash defeasance costs paid Net cash provided (used) by capital and related financing activities Cash flows from noncapital financing activities Cash payments to the City of San Antonio Grant programs Cash flows from investing activities Purchases of investments Proceeds from sales and maturities of investments Interest and other income Net cash provided (used) by investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Reconciliation of operating income to net cash provided by operating activities Cash flows from operating activities Operating income Noncash items included Depreciation and amortization Nuclear fuel amortization Provision for doubtful accounts Changes in current assets and liabilities (Increase) decrease in customer accounts receivable, net (Increase) decrease in other receivables (Increase) decrease in materials and supplies (Increase) decrease in fossil fuels (Increase) decrease in prepayments and other Increase (decrease) in accounts payable and accrued liabilities Changes in noncurrent and other assets and liabilities (Increase) decrease in other noncurrent assets and prepaid costs Increase (decrease) in customer service deposits payable Increase (decrease) in STP decommissioning liability Increase (decrease) in noncurrent liabilities Changes in deferred outflows of resources Changes in deferred inflows of resources Net cash provided (used) by operating activities Noncash financing activities Bond proceeds deposited into an escrow account for purposes of refunding long-term debt Impairment loss Gain on lease/leaseback termination, net Donated assets received and recorded Noncash investing activities Securities lending cash collateral (increase) decrease – Decommissioning Trusts See accompanying Notes to Basic Financial Statements.

30

$

2,512,461 (1,310,716) (179,052) 1,022,693

$

2,657,287 (1,375,223) (197,591) 1,084,473

(615,433) (37,583) 42,719 463,102

(522,793) (36,801) 39,235 226,978

(149,270) (230,130) (4,972) (531,567)

(157,035) (236,332) (4,582) (691,330)

(337,789) 44

(337,402) 31

$

(776,845) 562,232 27,044 (187,569) (34,188) 498,250 464,062

$

(670,959) 579,380 34,521 (57,058) (1,286) 499,536 498,250

$

584,191

$

604,268

410,228 40,366 4,419

395,788 41,688 14,646

6,733 4,820 (33) (13,785) (11,246) 9,729

7,493 4,282 628 (24,954) 8,779 24,049

$

(12,585) 1,184 11,433 (4,266) (19,718) 11,223 1,022,693

$

7,534 1,189 12,704 (75,489) 7,786 54,082 1,084,473

$ $ $ $

361,855 (391,417) 3,778

$ $ $ $

596,415 43,414 4,494

$

17,299

$

(9,193)

CPS Energy FY 2016 Annual Report

NOTES TO BASIC FINANCIAL STATEMENTS January 31, 2016 and 2015 1. Summary of Significant Accounting Policies Reporting Entity – City Public Service Board of San Antonio (also referred to as “CPS Energy,” “CPS” or the “Company”) has been owned by the City of San Antonio, Texas (“City”) since 1942. CPS Energy provides electricity and natural gas to San Antonio and surrounding areas. As a municipally owned utility, CPS Energy is exempt from the payment of income taxes, state franchise taxes, use taxes, and real and personal property taxes. CPS Energy provides certain payments and benefits to the City as permitted by bond ordinances. CPS Energy’s financial results are also included within the comprehensive annual financial report of the City. The decision to include applicable component units in CPS Energy’s financial statements was made by applying the criteria set forth in Governmental Accounting Standards Board (“GASB”) Statement No. 61, The Financial Reporting Entity: Omnibus, an amendment of GASB Statements No. 14 and No. 34. The following legally separate entities, for which CPS Energy is financially accountable and with which a financial benefit/burden relationship exists, meet those criteria for inclusion in CPS Energy’s financial statements as component units; therefore, their financial statements are blended with those of CPS Energy: x The City Public Service Restated Decommissioning Master Trust for the South Texas Project (“28% Decommissioning Trust”), and x The City Public Service Decommissioning Master Trust (TCC Funded) (“12% Decommissioning Trust”). These two component units are collectively referred to herein as the “Decommissioning Trusts” or the “Trusts.” The financial statements of the City Public Service Pension Plan (“Plan”) are separately audited and reported as of a December 31 fiscal year-end. The financial results of the Plan are not included herein except for certain disclosures as provided in Note 9 – Employee Pension Plan and in the Required Supplementary Information (“RSI”) following the financial statement notes. The City Public Service Group Health and Group Life Insurance Plans, and CPS Energy Long Term Disability Income Plan (collectively, “Employee Benefit Plans”) are separately audited and reported as of a December 31 fiscal year-end. The financial results of the Employee Benefit Plans are not included herein except for certain disclosures as provided in Note 10 – Other Postemployment Benefits and in the RSI following the financial statement notes. Included in CPS Energy’s financial statements are the applicable financial results for 40% of the South Texas Project (“STP”) Units 1 and 2. STP is a nonprofit special-purpose entity that reports under the guidance issued by the Financial Accounting Standards Board (“FASB”), including Topic 958 of the FASB Accounting Standards Codification, Not-for-Profit Entities. As such, certain revenue recognition criteria and presentation features are different from GASB revenue recognition criteria and presentation features. No modifications have been made to STP’s financial information within CPS Energy’s financial statements for these differences. Fiscal Year (“FY”) – The fiscal years ended January 31, 2016, and January 31, 2015, are referred to herein as “FY 2016” and “FY 2015,” respectively.

31

CPS Energy FY 2016 Annual Report Basis of Accounting – The financial statements of CPS Energy are presented in accordance with U.S. generally accepted accounting principles (“GAAP”) for proprietary funds of governmental entities. CPS Energy, including the Decommissioning Trusts, complies with all applicable pronouncements of GASB. In accordance with the utility systems’ revenue bond ordinances, CPS Energy has adopted the uniform system of accounts prescribed by the National Association of Regulatory Utility Commissioners (“NARUC”). The financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. FY 2015 GASB pronouncement implementations: x GASB Statement No. 67, Financial Reporting for Pension Plans, amends the requirements of GASB Statements No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and No. 50, Pension Disclosures, as they relate to pension plans that are administered through trusts, or equivalent arrangements. This Statement enhances note disclosures and RSI. It also requires the presentation of new information about annual moneyweighted rates of return in the notes to the financial statements and in ten-year RSI schedules. This Statement was implemented by the CPS Energy-sponsored pension benefit trust in its fiscal year ended December 31, 2014. x GASB Statement No. 68, Accounting and Financial Reporting for Pensions, amends the requirements of GASB Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, as well as the requirements of GASB Statement No. 50, Pension Disclosures, as they relate to governmental employers that account for pensions that are provided through trusts, or equivalent arrangements. CPS Energy adopted the requirements of GASB Statement No. 68 in FY 2015. This statement provides guidance for the measurement and recognition of a net pension liability and pension expense, and includes instruction for balances to be recognized as deferred outflows of resources and deferred inflows of resources. The impact for CPS Energy is as follows: Net pension liability – The net pension liability reported under GASB Statement No. 68 is the difference between the actuarial present value of projected pension benefit payments attributable to employees’ past service and the Plan’s fiduciary net position. Previous to this guidance, a liability was recognized only to the extent that contributions made to the plan were exceeded by the actuarially calculated contributions. Deferred outflows of resources and deferred inflows of resources – GASB Statement No. 68 requires recognition of deferred outflows and inflows of resources associated with the difference between projected and actual earnings on Plan investments, to be amortized to pension expense over a closed five-year period. Also to be recognized as deferred outflows and inflows of resources are differences between expected and actual experience with regard to economic or demographic factors in the measurement of total pension liability, to be amortized to pension expense over a closed period equal to the average of the expected remaining service lives of all employees receiving pension benefits. Employer contributions to the pension trust made between the net pension liability measurement date and the employer's fiscal year-end are recognized as deferred outflows of resources, to be included in pension expense in the subsequent fiscal year. GASB Statement No. 68 was effective for financial statement periods beginning after June 15, 2014, with the effects of accounting change applied retroactively by restating the financial statements. The Company used regulatory accounting, as permitted under GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in PreNovember 30, 1989 FASB and AICPA Pronouncements, and recorded a regulatory asset as of

32

CPS Energy FY 2016 Annual Report January 31, 2014, in the amount of $266.5 million to account for the net effect of required prior period restatements. When CPS Energy adopted GASB Statement No. 68 in FY 2015, the affected balances within the financial statements for the period ended January 31, 2014, were restated. x GASB Statement No. 69, Government Combinations and Disposals of Government Operations, establishes accounting and financial reporting guidance related to government combinations and disposals of government operations. The term government combinations refers to a variety of transactions and may be mergers, acquisitions or transfers of operations. This standard sets forth definitions of each of these transaction types and prescribes the specific accounting and reporting treatment to be given for each. The Statement also provides accounting and reporting guidance for disposals of government operations that have been sold or transferred. The requirements of this Statement are applied, beginning in FY 2015, to applicable combination and disposal transactions into which the Company enters. In FY 2016 and FY 2015, CPS Energy was not a party to any transaction types within the scope of this guidance. x GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date, an amendment of GASB Statement No. 68, provides guidance specific to the initial period reflecting the adoption of Statement No. 68 for amounts associated with contributions, if any, made by a contributing entity to a defined benefit pension plan after the measurement date of the government’s beginning net pension liability. A beginning deferred outflow of resources is required for pension contributions made subsequent to the measurement date of the beginning net pension liability. CPS Energy recognized a beginning deferred outflow of resources for contributions made subsequent to the measurement date of the Company’s beginning net pension liability in FY 2015 when Statement No. 68 was adopted. FY 2016 GASB pronouncement implementations: x GASB Statement No. 72, Fair Value Measurement and Application, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at a measurement date. Statement No. 72 requires that investments should generally be measured at fair value, with certain investments, such as short-term money market instruments, being specifically excluded from the requirement. Disclosures required by the standard include a description of the inputs and methods used to measure fair value. The adoption of Statement No. 72 resulted in the addition to CPS Energy’s financial statement footnotes of new disclosures describing assets and liabilities reported at fair value and the valuation techniques used to determine fair value. x GASB Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not Within the Scope of GASB Statement 68, establishes requirements for defined benefit pensions that are not within the scope of Statement No. 68, as well as for the assets accumulated for purposes of providing those pensions. There was no impact to CPS Energy’s financial statements from implementation of this guidance. x GASB Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, provides guidance for two new recognized categories of authoritative GAAP and addresses the use of authoritative and nonauthoriative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. Implementation of this guidance did not have any significant impact on CPS Energy’s financial statements. x GASB Statement No. 79, Certain External Investment Pools and Pool Participants, was issued to address how certain investment pool transactions are reported in response to anticipated

33

CPS Energy FY 2016 Annual Report changes in a U.S. Securities and Exchange Commission (SEC) rule that was previously included in GASB literature by reference. This Statement did not have a significant impact on CPS Energy’s financial reporting. Future GASB pronouncement implementations: x GASB Statement No. 74, Financial Reporting for Post Employment Benefit Plans Other Than Pension Plans, replaces Statements No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plan, as they relate to certain other postemployment benefit (“OPEB”) plans that are administered through trusts or equivalent arrangements. This Statement requires more extensive note disclosures and RSI related to the measurement of the OPEB liabilities for which assets have been accumulated, including information about the annual money-weighted rates of return on plan investments. This standard will be implemented in their fiscal years ending December 31, 2017, by the CPS Energy-sponsored OPEB trusts. x GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, replaces the requirements of Statements No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans, for OPEB. This Statement establishes new accounting and financial reporting requirements for governments whose employees are provided with OPEB, including the recognition and measurement of liabilities, deferred outflows of resources, deferred inflows of resources and expense. For each qualifying plan providing postemployment benefits other than pensions, employers are required to report the difference between the actuarial OPEB liability and the related plan’s fiduciary net position as the net OPEB liability on the statement of net position. Previously, a liability was recognized only to the extent that contributions made to each plan were exceeded by the actuarially calculated contributions for those plans. Additionally, Statement No. 75 sets forth note disclosure and required supplementary disclosure requirements for defined contribution OPEB. This standard will be adopted by CPS Energy in the fiscal year ending January 31, 2018. The Company has initiated an evaluation of the impact that adoption of this Statement will have on its financial statements. x GASB Statement No. 77, Tax Abatement Disclosures, provides financial disclosure requirements for governments that enter into tax abatement agreements. This Statement indicates how disclosures for tax abatements should be organized and what descriptive information, including commitments made by the entity, should be presented. This standard will be adopted in the fiscal year ending January 31, 2018. Because CPS Energy is not a tax-levying government and is not a party to tax abatement agreements, there is no expected impact on the financial statements. x GASB Statement No. 78, Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans, clarifies requirements for the application of GASB Statement No. 68 for certain governments whose employees receive pension benefits through multiple-employer plans. As CPS Energy does not sponsor benefits through the type of plan addressed by this Statement, the guidance is not applicable and will have no impact on the Company’s financial reporting. x GASB Statement No. 80, Blending Requirements for Certain Component Units – an amendment of GASB Statement No. 14, amends the blending requirements for the financial statement presentation of certain component units. The additional criterion requires blending of a component unit incorporated as a not-for-profit corporation in which the primary government is the sole corporate member. The additional criterion does not apply to component units included in the financial reporting entity pursuant to the provisions of GASB Statement No. 39, Determining

34

CPS Energy FY 2016 Annual Report Whether Certain Organizations Are Component Units. This standard will be effective for CPS Energy in FY 2018. The Company is evaluating the expected impact. The following information is presented alphabetically: Allowance for Funds Used During Construction (“AFUDC”) – To reflect funding methodology, the AFUDC rate includes both a debt and an equity component. The blended rate is composed of 50% equity and 50% debt based on construction funding forecasts. The investment rate is reviewed quarterly to determine if any adjustments are necessary. Alternate AFUDC rates are applied to projects costing more than $100 million, reflecting the method by which they are funded. Build America Bonds (“BABs”) – The American Recovery and Reinvestment Act (“ARRA”) of 2009 provided authority for the issuance of BABs, which were issuable in calendar years 2009 and 2010 as taxable bonds. The ARRA permitted the issuer or the issuer’s paying agent to receive subsidy payments equal to 35% of the bond’s interest costs directly from the U.S. Department of the Treasury. Pursuant to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, the federal government reduced the BABs subsidy by 8.7% for payments made during the period March 1, 2013, through their fiscal year ended September 30, 2013. The federal government reduced the BABs subsidy by 7.2% for payments made during the period October 1, 2013, through their fiscal year ended September 30, 2014. The subsidy was reduced by 7.3% for payments made during the period October 1, 2014, through their fiscal year ended September 30, 2015. The subsidy is being reduced by 6.8% for payments made during the period October 1, 2015, through their fiscal year ended September 30, 2016. CPS Energy has taken the position that the BABs direct subsidy should be deducted when calculating debt service since the subsidy is received directly by a trustee to be used solely for BABs debt service payments. Transaction details for CPS Energy’s BABs issuances are provided in Note 6 – Revenue Bonds. Capital Assets – The costs of additions and replacements of assets identified as major components or property units are capitalized. Maintenance and replacement of minor items are charged to operating expense. For depreciable assets that are retired due to circumstances other than impairment, the cost of the retired asset, plus removal costs and less salvage, is charged to accumulated depreciation. Per the financial reporting requirements of GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries, any losses associated with capital asset impairments will be charged to operations, not to accumulated depreciation. A constructed utility plant is stated at the cost of construction, including expenditures for contracted services; equipment, material and labor; indirect costs, including general engineering, labor, equipment and material overheads; and AFUDC, or capitalized interest. AFUDC is applied to projects that require 30 days or more to complete. Proceeds from customers to partially fund construction expenditures are reported as contributed capital in the Statements of Revenues, Expenses and Changes in Net Position as increases in net position in accordance with the requirements of GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions. The amount reported for contributed capital was $46.5 million for FY 2016 and $43.7 million for FY 2015. This included donated assets of $3.8 million and $4.5 million, respectively. The remaining portion of these balances, $42.7 million for FY 2016 and $39.2 million for FY 2015, represents contributions received from customers as payments for utility extensions and services, as well as funding for the Light Emitting Diode ("LED") streetlight project and the Dry Cask Storage Project. Except for nuclear fuel, which is amortized over units of production, CPS Energy computes depreciation using the straight-line method over the estimated service lives of the depreciable property according to

35

CPS Energy FY 2016 Annual Report asset type. Total depreciation as a percent of total depreciable assets, excluding nuclear fuel, was 3.3% for both FY 2016 and FY 2015. The estimated useful lives of depreciable capital assets for both FY 2016 and FY 2015 were as follows: Depreciable Capital Asset Buildings and structures Systems and improvements Generation Transmission and distribution Gas Intangibles - software Intangibles - other Machinery and equipment Mineral rights and other Nuclear fuel

Estimated Useful Life 20–60 years 18–60 years 20–55 years 50–65 years 10 years 30 years 4–30 years 20–40 years Units of Production

Thresholds contained in the Company’s capitalization policy for both FY 2016 and FY 2015 were as follows: Asset Class Land, land improvements and certain easements Buildings and building improvements Computer software - purchased Computer software - internally developed Computer software - enhancements/upgrades Computer hardware All other assets

Threshold Capitalize all $10,000 50,000 50,000 50,000 3,000 3,000

Cash Equivalents and Investments, Unrestricted and Restricted – CPS Energy’s investments with a maturity date within one year of the purchase date are reported at amortized cost, which approximates fair value. Amortization of premium and accretion of discount are recorded over the terms of the investments. CPS Energy’s investments with a maturity date longer than one year from the purchase date are accounted for at fair value. As available, fair values are determined by using generally accepted financial reporting services, publications and broker-dealer information. The specific identification method is used to determine costs in computing gains or losses on sales of securities. CPS Energy also reports all investments of the Decommissioning Trusts at fair value. Refer to Note 13 – Fair Value Measurement for additional information. Restricted funds are generally for uses other than current operations. They are designated by law, ordinance or contract and are often used to acquire or construct noncurrent assets. Restricted funds consist primarily of unspent bond or commercial paper proceeds, debt service required for the New Series Bonds (senior lien obligations), Series Bonds (junior lien obligations), commercial paper, the flexible rate revolving note (“FRRN”) and funds for future construction or contingencies. Restricted funds also include customer assistance programs that receive proceeds from outside parties and the assets of the Decommissioning Trusts. Also included in the restricted funds classification is the Repair and Replacement Account, restricted in accordance with the Company’s bond ordinances. Prior to February 1, 2012, 1% of the prior fiscal year’s electric base rate revenue was redesignated from the Repair and Replacement Account to the Community Infrastructure and Economic Development (“CIED”) Fund, which was used to support qualified capital projects that provided economic benefit within

36

CPS Energy FY 2016 Annual Report the communities served. Effective February 1, 2012, the CPS Energy Board of Trustees (“Board”) found that the objectives underlying the establishment of the CIED Fund had been successfully accomplished and authorized the termination of the policy providing for annual contributions to the fund. Prior to FY 2014, in lieu of CIED funding, the City requested an equivalent amount of general funds to be transferred for its use. In such cases, the amount previously designated for CIED funding was returned to the Repair and Replacement Account and general funds were transferred to the City. Since the termination of the CIED Fund, CPS Energy sets aside 1% of prior fiscal year electric base rate revenue, which is transferred to the City on an annual basis as an additional transfer. In accordance with bond ordinances, the combined total of all payments to the City may not exceed 14% of gross revenues. Until early FY 2016, CPS Energy and the Decommissioning Trusts had agreements with Frost Bank, a Texas-based financial institution, for the purpose of securities lending. Any cash collateral received for CPS Energy’s or the Decommissioning Trusts' securities lending transactions was reported as a current asset on the Statements of Net Position and the corresponding obligation to repay the cash collateral was reported on the Statements of Net Position as a current liability that directly offsets the amount received from broker-dealers in exchange for securities loaned. The securities lending program with Frost Bank was discontinued effective April 1, 2015. See Note 12 – Other Financial Instruments for details regarding securities lending. For additional disclosures provided in accordance with GASB Statement No. 40, Deposit and Investment Risk Disclosures, see Note 2 – Cash, Cash Equivalents and Investments. These disclosures address investment exposure to interest rate risk, credit risk (including custodial credit risk and concentration of credit risk), and foreign currency risk, as applicable. Communication Towers Sale – In FY 2014, the Company entered into an agreement for $41.0 million to sell 69 existing communication towers to an independent third party, including provisions for the Company’s continued use of select space on those towers, the purchaser’s use of space in the Company’s communication shelters located near the towers, and the assignment of existing license agreements with other third parties using space on the towers. See Note 4 – Capital Assets, Net and Note 16 – Leases for additional information. Compensated Absences – Employees earn vacation benefits based upon their employment status and years of service. As of January 31, 2016, and January 31, 2015, the accrued liabilities for those vested benefits were $17.4 million and $16.1 million, respectively. Decommissioning – The Company accounts for decommissioning by recognizing a liability and an expense for a pro rata share of projected decommissioning costs as determined by the most recent cost study. A new cost study is performed every five years; and, in years subsequent to the latest study, estimated annual decommissioning expense and an increase in the liability is calculated by applying the effects of inflation and the ratio of years of plant usage to total plant life. See Note 14 – South Texas Project for additional details on the most recent cost study. Additionally, due to requirements under the Code of Federal Regulations governing nuclear decommissioning trust funds, a zero net position approach is applied in accounting for the Decommissioning Trusts. Accordingly, current-year and prior-year activity in the Trusts is reported in the nonoperating income (expense) section of the Statements of Revenues, Expenses and Changes in Net Position as STP decommissioning net costs recoverable (refundable). The cumulative effect of activity in the Trusts is reported on the Statements of Net Position as a noncurrent liability referred to as STP decommissioning net costs refundable since any excess funds are payable to customers. Going forward, prolonged unfavorable economic conditions could result in the assets of the Trusts being less than the estimated decommissioning liability. In that case, instead of an excess as currently exists, there would be

37

CPS Energy FY 2016 Annual Report a deficit that would be reported as STP decommissioning net costs recoverable. This amount would be receivable from customers. Currently, a project to develop an independent spent fuel storage installation (“Dry Cask Storage Project”) is under way at STP to provide for storage of spent nuclear fuel after the spent fuel pool has reached capacity. CPS Energy’s Decommissioning Trusts have separate spent fuel management accounts to pay for these costs. By contract, spent fuel will eventually be removed to final storage by the Department of Energy (“DOE”). The DOE failed to meet the contractual start date to receive spent fuel, and STP and other utilities have reached settlement agreements with the DOE. In the most recent settlement agreement dated January 24, 2014, the DOE committed to reimburse STP for allowable spent fuel management expenditures through 2016. Ongoing costs for the spent fuel management project are being funded by the STP owners (CPS Energy; the City of Austin; and NRG South Texas LP, a wholly owned subsidiary of NRG Energy, Inc.) as expenditures are incurred. CPS Energy requests reimbursement periodically from its Decommissioning Trusts for the Company’s portion of allowable costs. Annually, the South Texas Project Nuclear Operating Company (“STPNOC”) submits claims to the DOE for the reimbursement of allowable costs for spent fuel management. Allowable costs are returned to the owners by STP upon receipt from the DOE. In turn, CPS Energy reimburses the Trusts for the settlement amount received from the DOE. Qualifying spent fuel management costs not reimbursable by the DOE are funded by the Trusts. Spent fuel management costs that do not qualify for reimbursement by the DOE or the Trusts are recorded as STP operations and maintenance (“O&M”) expense or capital costs. Deferred Inflows of Resources – Deferred inflows of resources related to pension amounted to $75.0 million at January 31, 2016, and $63.8 million at January 31, 2015. Deferred inflows of resources related to the sale of future revenue associated with the sale of the communication towers totaled $4.5 million at January 31, 2016, and $5.3 million at January 31, 2015. Deferred Outflows of Resources – Deferred outflows of resources related to pension amounted to $93.2 million as of January 31, 2016, and $73.8 million at January 31, 2015. Consistent with hedge accounting treatment required for derivative instruments that are determined to be effective in offsetting changes in the cash flows of the hedged item, changes in fair value are reported as deferred outflows or deferred inflows of resources on the Statements of Net Position until the expiration of the contract underlying the hedged expected fuel purchase transaction. When fuel hedging contracts expire, at the time the purchase transactions occur, the deferred balance is recorded as an adjustment to fuel expense. Deferred outflows of resources related to fuel hedges totaled $37.9 million at January 31, 2016, and $29.8 million at January 31, 2015. For current and advance refundings of debt, the difference between the reacquisition price and the net carrying amount of the old debt is recorded as unamortized reacquisition costs and reported as deferred outflows of resources. These amounts are amortized as components of interest expense over the shorter of the remaining life of the refunding or the refunded debt. At January 31, 2016, and January 31, 2015, reacquisition costs totaled $65.6 million and $65.2 million, respectively. Federal Grant Programs – Periodically, federal grants are made available to CPS Energy as a subrecipient for a portion of grant funds allocated to the state of Texas. Grant receipts are recorded as nonoperating income and generally reimburse CPS Energy for costs, recorded as operating expenses, incurred in the administration of the program. This accounting treatment results in no impact to the Company’s net position. Revenues associated with the grant-related programs are exempt from payments of a percentage of gross revenues made to the City. Grant funding received by the Company is subject to

38

CPS Energy FY 2016 Annual Report review and audit by the grantor agencies. Such audits could lead to requests for reimbursements to the grantor agencies for expenditures disallowed under terms of the grants. Management believes such disallowances, if any, would be immaterial. Flexible Rate Revolving Note Private Placement Program – On January 20, 2009, the Board authorized the establishment of an FRRN program to provide additional liquidity in support of the Company’s electric and gas systems (“Systems”). Under the program, the Company can issue taxable or tax-exempt notes with individual maturities of one year or less at fixed or variable interest rates in an aggregate principal amount at any one time outstanding not to exceed the currently effective limit of $26 million, reduced in FY 2016 from $100 million. The program became effective on April 28, 2009, and through annual renewals authorizes the issuance of such notes through November 1, 2028. The FRRN has been classified as short-term in accordance with the financing terms under the Note Purchase Agreement and is reported on the Statements of Net Position under current maturities of debt. The note outstanding under this program totaled $25.2 million at January 31, 2016, and at January 31, 2015. See Note 8 – Flexible Rate Revolving Note. Interim Transmission Costs of Service (“TCOS”) Filing – On June 3, 2014, CPS Energy filed an Application for Interim Update of Wholesale Transmission Rates, based on FY 2014 data, with the Public Utility Commission of Texas (“PUCT”). This interim TCOS filing was submitted to request an increase in transmission revenue requirements as a result of increased capital investment since FY 2006. The application was approved on July 23, 2014, and resulted in an annual transmission revenue requirement of $169.5 million. This represents an increase of $74.3 million from the $95.2 million transmission revenue requirement previously approved on January 19, 2007. Interim transmission rates are subject to re-evaluation by the PUCT at the time of a transmission service provider’s next complete wholesale transmission rate review. CPS Energy management does not expect that any adjustment to the approved interim rates resulting from a future re-evaluation would be significant. Inventories – CPS Energy maintains inventories for its materials and supplies and fossil fuels. In total, CPS Energy reported ending inventories of $210.5 million and $196.7 million at January 31, 2016, and January 31, 2015, respectively. Included in these amounts was CPS Energy’s portion of STP inventories valued at $48.0 million at January 31, 2016, and $46.6 million at January 31, 2015. STP values its inventories at the lower of average cost or net realizable value. CPS Energy’s directly managed inventories are valued using an average costing approach. Lease/Leaseback Transaction – The City was a party to a transaction, entered into in June 2000, involving its J.K. Spruce Unit 1 (“Spruce 1”) coal-fired electric generating unit, pursuant to which such facility was subject to a variety of contractual arrangements, including a lease agreement, with CPS Energy as lessee. The term of the lease was scheduled to expire in March 2032. In February 2014, the parties executed an agreement terminating the transaction in its entirety. As a result of this termination, CPS Energy was released from all scheduled payment and security obligations under the lease transaction. The termination transaction resulted in a noncash gain of $43.4 million, net of the related City payment on the termination, which was reported as a special item on the Statements of Revenues, Expenses and Changes in Net Position. Prior to the termination, CPS Energy retained fee simple title to, and operating control of, the facility and retained all revenues generated from sales of electricity produced from the facility. For the original lease transaction, CPS Energy received the appraised fair value of the unit, $725.0 million, which was being amortized over 381 months. The transaction expenses and leaseback costs of $628.3 million were recorded as prepaid items in FY 2001 and, through FY 2014, were being amortized over 381 months, or approximately 32 years.

39

CPS Energy FY 2016 Annual Report CPS Energy’s net benefits associated with the transaction were approximately $88.0 million. The City was paid $12.3 million in accordance with the provisions of the New Series Bond Ordinance that permit 14% of this net benefit to be distributed. The distribution was recorded as a prepayment in FY 2001 and, through FY 2014, was being amortized over 381 months. As a result, net proceeds from the transaction of approximately $75.7 million were being recognized over the leaseback term. Long-Term Debt – To support its long-term capital financing needs, CPS Energy uses several types of debt instruments. As of January 31, 2016, and January 31, 2015, these included fixed-rate and variablerate bonds, as well as commercial paper. Relative to the bond instruments, provisions may be included that allow for refunding after specified time periods during the bond term. Subject to applicable timing restrictions that may prevent early payoff, CPS Energy also has the option to defease, or extinguish debt. A defeasance occurs when funds are placed in an irrevocable trust to be used solely for satisfying scheduled payments of both interest and principal of the defeased debt, which fully discharges the bond issuer’s obligation. At the time of an extinguishment, since the issuer no longer has the legal obligation, the defeased debt is removed from the Statements of Net Position, the related unamortized costs are expensed, and the gain or loss is immediately recognized. Current refundings involve issuing new debt (refunding bonds) to redeem existing debt (refunded bonds) that can be called within 90 days of the call date of the refunded bonds. Advance refunding of bonds involves issuing new debt to redeem existing debt that cannot be called within 90 days of issuing the refunding bonds. In these circumstances, the refunding bond proceeds are irrevocably escrowed with a third party. These proceeds, and income thereon, are used to pay the debt service on the refunded bonds until the refunded bonds can be called. Refunding bonds are generally issued to achieve debt service savings. See Note 6 – Revenue Bonds for information on current-year debt refundings. Net Pension Liability – A net pension liability is recorded in accordance with GASB Statement No. 68. The liability is the difference between the actuarial total pension liability and the Plan’s fiduciary net position as of the measurement date. The net pension liability was $266.4 million at January 31, 2016, and $266.8 million at January 31, 2015. For additional information, see Note 9 – Employee Pension Plan. New Generation Assets – In FY 2013, taxable senior lien bonds were issued to purchase the Rio Nogales combined-cycle natural gas electric generating plant in Seguin, Texas. The 800-MW plant was being utilized to provide a portion of its power to a third party that had executed a multiyear agreement, which expired in September 2015, for an option to call on power from the plant. Any remaining power is available for CPS Energy to sell into the Electric Reliability Council of Texas (“ERCOT”) market or to utilize to meet its commitments. As of February 1, 2016, CPS Energy integrated the Rio Nogales plant into its rate base to provide generation capacity that will not otherwise be available once J.T. Deely Units 1 and 2 are mothballed. In conjunction with the purchase, CPS Energy entered into a Tax Exemption Settlement Agreement in which CPS Energy agreed to pay $25.5 million to certain parties to compromise, terminate claims and settle any disputes relating to exemption of ad valorem taxes involving the parties to this agreement. The payment was recorded as an intangible asset that will be amortized over the life of the agreement, which runs through December 2041. Other Noncurrent Assets – Other noncurrent assets include prepayments, Save for Tomorrow Energy Program (“STEP”) net costs recoverable and net OPEB obligation. This section also includes a pension regulatory asset and unamortized bond expense discussed within the Regulatory Accounting topic below. Prepayments – Included in prepayments is the balance related to an agreement entered into in November 2011, between the Company and SunEdison, for purchased power from San Antonio-area solar energy facilities with a total of 30 MW of capacity. In FY 2013, $77.0 million in prepayments were made for approximately 60% of the anticipated annual output over a period of 25 years. At January 31, 2016,

40

CPS Energy FY 2016 Annual Report of the remaining prepayment balance, $3.1 million was classified as current and $63.0 million was classified as noncurrent. At January 31, 2015, $3.1 million was classified as current and $66.0 million was classified as noncurrent. The purchase of the balance of the output is on a pay-as-you-go basis. As part of the agreement, CPS Energy has the right to purchase the facilities six years after commencement of commercial operation, which occurred in May 2012. Save for Tomorrow Energy Program – Through STEP, CPS Energy has projected it will spend approximately $849 million over a 12-year period, beginning in FY 2010, on energy efficiency and conservation. Contributing towards its goal to save 771 MW by 2020, CPS Energy’s programs include home weatherization, higher efficiency light bulbs, solar rebates, peak saver thermostats, home area networks, demand response, rooftop and community solar programs, and other such initiatives. Annually, approximately $9.0 million of the STEP expenses are funded through the electric base rate and reported as CPS Energy O&M expenses. STEP expenses over this initial amount per year are recovered through the fuel adjustment factor over a 12-month period beginning in the subsequent fiscal year after they are incurred and have been independently validated. These STEP recoveries are accrued as a regulatory asset referred to as STEP net costs recoverable in accordance with guidance provided by GASB Statement No. 62. This guidance permits certain costs to be capitalized as a regulatory asset until they are recovered through future rates. Net OPEB obligation – An OPEB obligation is recorded in accordance with GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pension. The obligation represents the cumulative difference between the annual OPEB cost and the employer’s contributions to the Employee Benefit Plans. At January 31, 2016, and January 31, 2015, the net OPEB obligation was $(21.2) million and $(6.9) million, respectively. For additional information, see Note 10 – Other Postemployment Benefits and Required Supplementary Information. Other Noncurrent Liabilities – Other noncurrent liabilities include the obligation for Project Warm resources held by the Company, the unrealized change in fair market value of fuel hedges, unearned communication shelter revenue, miscellaneous unearned credits, and other liabilities for balances payable and deposits received. Rate Increases – Rates are set by the Board and approved by the San Antonio City Council. On November 7, 2013, the City Council approved a 4.25% increase in both CPS Energy’s electric and natural gas base rates, which was effective February 2014. Reclassifications – Certain amounts in the prior year’s financial statements have been reclassified to conform to the current-year presentation. Regulatory Accounting – Regulatory accounting applies to governmental entities with rate-regulated operations, such as CPS Energy, that fall within the scope of GASB Statement No. 62. Regulatory accounting may be applied by entities to activities that have regulated operations that meet all required criteria. By establishing a regulatory asset, an entity seeks to recognize a cost over a future period of time and match recovery of those costs from its ratepayers to the amortization of the asset. An entity must demonstrate that adequate future revenue will result from inclusion of that cost in allowable costs for rate-making purposes. Beginning in FY 2014, with the implementation of GASB Statement No. 65, CPS Energy adopted the use of regulatory accounting to account for debt issuance costs. Prior to FY 2014, the Company had historically reported debt issuance costs as assets and amortized them over the life of the related debt. Under GASB Statement No. 65, debt issuance costs no longer meet the definition of an asset, nor do they meet the definition of a deferred outflow of resources; therefore, they must be expensed in the period incurred.

41

CPS Energy FY 2016 Annual Report CPS Energy establishes regulatory assets for the debt issuance costs that GASB Statement No. 65 would otherwise require be expensed. This regulatory accounting treatment results in the amortization of these costs over the life of the related debt. See Note 6 – Revenue Bonds for additional information. The Company also elected to use regulatory accounting in conjunction with the implementation of GASB Statement No. 68 in FY 2015, which required immediate recognition of the Company’s previously unrecognized net pension liability. For governmental entities other than those whose operations are rate regulated, the GASB Statement No. 68 adoption accounting required a charge to net position (equity) for the net effect of the restatements required to recognize the net pension liability. CPS Energy elected to use regulatory accounting, as allowed under GASB Statement No. 62, to create a regulatory asset representing the net effect of the prior period restatements. Authorization was obtained from the San Antonio City Council for the creation of the regulatory asset, which totaled $266.5 million and is being amortized over a period of 50 years. See Note 9 – Employee Pension Plan for additional information. Revenues and Expenses – Revenues are recorded when earned. Customers’ meters are read, or periodically estimated, and bills are prepared monthly based on billing cycles. Rate tariffs include adjustment clauses that permit recovery of electric and gas fuel costs. CPS Energy uses historical information from prior fiscal years as partial bases to estimate and record earned revenue not yet billed (unbilled revenue). This process involves an extrapolation of customer usage over the days since the last meter read through the last day of the monthly period. Also included in unbilled revenue are the over/under-recoveries of electric and gas fuel costs and regulatory assessments. Unbilled revenue receivable recorded at January 31, 2016, and January 31, 2015, including estimates for electric fuel and gas costs, was $36.6 million and $37.2 million, respectively. An adjustment clause in CPS Energy’s rate tariffs also permits recovery of regulatory assessments. Specifically, beginning in March 2000, CPS Energy began recovering assessments from the PUCT for transmission access charges and from the Texas Independent System Operator, also known as ERCOT, for its operating costs and other charges applicable to CPS Energy as a wholesale provider of power to other utilities. Regulatory assessments for FY 2016 and FY 2015 were $67.0 million and $79.3 million, respectively. These regulatory assessments include the impact of the change in CPS Energy’s interim TCOS application approved on July 23, 2014. Operating revenues include receipts from energy sales, ancillary services and miscellaneous revenue, such as late payment fees and rental income, related to the operation of the Systems. Operating expenses are recorded as incurred and include those costs that result from the ongoing operations of the Systems. Nonoperating income consists primarily of investment income, including fair value adjustments, and grant programs. Certain miscellaneous income amounts from renting general property and providing various services are also recorded as nonoperating income when they are not directly identified with the Systems. Beginning in FY 2015, rental income from the sale of communication towers is also included in nonoperating income. Statements of Cash Flows – For purposes of reporting cash flows, CPS Energy considers all highly liquid debt instruments purchased with an original maturity of 90 days or less to be cash equivalents. CPS Energy’s Statements of Cash Flows separately list the noncash transactions. Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. Those estimates and assumptions affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the amounts of revenues and expenses reported during the fiscal periods. Accordingly, actual results could differ from those estimates.

42

CPS Energy FY 2016 Annual Report

2. Cash, Cash Equivalents and Investments CPS Energy’s cash deposits at January 31, 2016, and January 31, 2015, were either insured by federal depository insurance or collateralized by banks. For deposits that were collateralized, the securities were U.S. Government, U.S. Government Agency or U.S. Government-guaranteed obligations held in book entry form by the Federal Reserve Bank of New York or other allowable banks in CPS Energy’s name. Separation – CPS Energy’s cash, cash equivalents and investments can be separated in the following manner: x Those directly managed by CPS Energy, and x Those managed through the Decommissioning Trusts. For financial reporting purposes, cash, cash equivalents and investments managed directly by CPS Energy have been consistently measured as of the end of the applicable fiscal years. The Decommissioning Trusts are reported on a calendar-year basis.

Cash and Cash Equivalents (In thousands) January 31, 2016 Cash Petty cash funds on hand Deposits with financial institutions Unrestricted CPS Energy deposits Restricted CPS Energy deposits Capital projects Debt service Project Warm Total cash

$

Cash equivalents Investments with original maturities of 90 days or less CPS Energy unrestricted (current) CPS Energy restricted (noncurrent) Decommissioning Trusts – restricted (noncurrent) Total cash equivalents Total cash and cash equivalents

$

43

2015 70

$

97

59,222

53

165 484 235 60,176

3 528 194 875

98,209 276,456 29,221 403,886

212,920 252,749 31,706 497,375

464,062

$

498,250

CPS Energy FY 2016 Annual Report

Summary of Cash, Cash Equivalents and Investments (In thousands) January 31, 2016 Cash and cash equivalents CPS Energy – unrestricted and restricted Decommissioning Trusts – restricted Total cash and cash equivalents

$

Gross investments CPS Energy – unrestricted and restricted Decommissioning Trusts – restricted Total gross investments

434,841 29,221 464,062

2015 $

1,244,310 514,099 1,758,409

Investments with original maturities of 90 days or less included in cash and cash equivalents CPS Energy – unrestricted and restricted Decommissioning Trusts – restricted Total cash equivalents Net investments

1,133,500 536,416 1,669,916

(374,665) (29,221) (403,886)

(465,669) (31,706) (497,375)

1,354,523

Total cash, cash equivalents and investments

$ 1,818,585

466,544 31,706 498,250

1,172,541 $

1,670,791

Public Funds Investment Act (“PFIA”) – CPS Energy’s investments and the investments held in the Decommissioning Trusts are subject to the rules and regulations of the PFIA. The PFIA regulates what types of investments can be made, requires written investment policies, mandates training requirements of investment officers, requires internal management reports to be produced at least quarterly, and provides for the selection of authorized broker-dealers and investment managers. Investments of CPS Energy – CPS Energy’s allowable investments are defined by Board resolution, CPS Energy Investment Policy, bond ordinances, commercial paper ordinances and state law. These investments are subject to market risk, and their market value will vary as interest rates fluctuate. All CPS Energy investments are held in trust custodial funds by independent banks. Investments of the Decommissioning Trusts – CPS Energy’s investments in the Decommissioning Trusts are held by an independent trustee. Investments are limited to those defined by Board resolution, the South Texas Project Decommissioning Trust Investment Policy, the Investment Committee, the Trust Agreements and state law, as well as PUCT and Nuclear Regulatory Commission (“NRC”) guidelines. Allowable investments for the Decommissioning Trusts include all types directly permissible for CPS Energy, except for investment pools. Additionally permitted are investments in equities and corporate bonds (including international securities traded in U.S. dollars and on U.S. stock exchanges). In accordance with the Trusts’ Investment Policy, total investments can include a maximum of 60% equity securities. In the summer of 2014, CPS Energy refined its target allocations for both Trusts in an effort to further reduce the overall risk of the portfolios. The new target allocations for both Trusts are 63.5% fixed income, 28.0% equities and 8.5% U.S. real estate investment trusts.

44

CPS Energy FY 2016 Annual Report

Permissible Investments

CPS Energy Investments

Decommissioning Trusts Investments

U.S. Government, U.S. Government Agency, or U.S. Government-guaranteed obligations

9

9

Collateralized mortgage obligations issued by the U.S. Government, or other obligations whose principal and interest are guaranteed by the U.S. or state of Texas

9

9

Fully secured certificates of deposit offered by a broker or issued by a depository institution that has its main office or branch office in the state of Texas

9

9

Direct repurchase agreements

9

9

Reverse repurchase agreements

9

9

Defined bankers’ acceptances and commercial paper

9

9

No-load money market mutual funds

9

9

Investment pools

9

Not Permitted

Not Permitted

9

9

9

Corporate bonds

Not Permitted

9

International securities

Not Permitted

9

No-load commingled funds

Not Permitted

9

Securities lending programs

9

9

Other specific types of secured or guaranteed investments

9

9

Investment Description

Equities Investment quality obligations of states, agencies, counties, cities and political subdivisions of any state

45

CPS Energy FY 2016 Annual Report

Cash, Cash Equivalents and Investments by Fund (In thousands)

January 31, 2016

Unrestricted Cash and cash equivalents Investments Total unrestricted (current)

$

Restricted Debt service Cash and cash equivalents Total debt service Capital projects Cash and cash equivalents Investments Total capital projects Ordinance Cash and cash equivalents Investments Total ordinance Project Warm Cash and cash equivalents Investments Total Project Warm Decommissioning Trusts Cash and cash equivalents Investments Total Decommissioning Trusts Total restricted Cash and cash equivalents Investments Total restricted (noncurrent) Total cash, cash equivalents and investments (unrestricted and restricted)

$

157,501 179,910 337,411

2015 $

213,070 145,150 358,220

14,140 14,140

13,210 13,210

141,302 260,317 401,619

101,191 117,008 218,199

121,650 421,915 543,565

138,866 398,165 537,031

248 7,503 7,751

207 7,508 7,715

29,221 484,878 514,099

31,706 504,710 536,416

306,561 1,174,613 1,481,174

285,180 1,027,391 1,312,571

1,818,585

$

1,670,791

Risk Exposure – Cash equivalents and fixed-income investments are exposed to interest rate risk, credit risk (including custodial credit risk and concentration of credit risk), and foreign currency risk. Equity investments are exposed to credit risk (including custodial credit risk and concentration of credit risk) and foreign currency risk. Interest rate risk is the exposure to fair value losses resulting from rising interest rates. Credit risk is the risk that an issuer of an investment will not fulfill its obligations (will be unable to make timely principal and interest payments on the security). Foreign currency risk is the exposure to fair value losses arising from changes in exchange rates. Cash, cash equivalents and fixedincome investments are also exposed to inflation, liquidity, political, legal, event, reinvestment and timing (call) risks. Additionally, equity investments are exposed to political, legal, event, market and general economic risks. Due to market fluctuations, it is possible that substantial changes in the market value of investments could occur after the end of the reporting period. CPS Energy’s investments and the investments in the Decommissioning Trusts are managed with a conservative focus. The Investment Policies are structured to ensure compliance with bond ordinances, the PFIA, the Public Funds Collateral Act, the NRC, the PUCT, other applicable state statutes and Board resolutions relating to investments. CPS Energy identifies and manages risks by following an appropriate investment oversight strategy, establishing and monitoring compliance with Investment Policies and procedures, and continually monitoring prudent controls over risks.

46

CPS Energy FY 2016 Annual Report

Summary of Investments (Including Cash Equivalents) by Organizational Structure and Type1 (In thousands) January 31, 2016 CPS Energy investments U.S. Treasuries, U.S. Agencies, municipal bonds, CDs, commercial paper, investment pools and money market mutual funds Decommissioning Trusts U.S. Treasuries, U.S. Agencies, municipal bonds and money market mutual funds Corporate bonds Foreign bonds Subtotal Common stock Real estate investment trusts Preferred stock Total Decommissioning Trusts Total investments 1

$

1,244,310

$

198,266 123,435 20,162 341,863 126,122 45,400 714 514,099 1,758,409

2015

$

1,133,500

$

217,595 119,271 20,698 357,564 133,259 44,864 729 536,416 1,669,916

Excludes cash of $60.2 million and $0.9 million as of January 31, 2016, and January 31, 2015, respectively.

Investment Policies – In accordance with state law, the Trusts’ Investment Policy allows for investment in additional types of securities, such as corporate bonds and equity securities. The policy provides guidelines to ensure all funds are invested in authorized securities in order to earn a reasonable return. The primary emphasis is placed on long-term growth commensurate with the need to preserve the value of the assets and, at the time funds are needed for decommissioning costs, on liquidity. The Investment Policy continues to follow the “prudent person” concept. GASB Statement No. 40 – In accordance with GASB Statement No. 40, additional disclosures have been provided in this note that address investment exposure to interest rate risk, credit risk (including custodial credit risk and concentration of credit risk), and foreign currency risk, as applicable. CPS Energy’s investments and those in the Decommissioning Trusts do not have custodial credit risk, as all investments are held either by an independent trustee or bank and are in CPS Energy’s or the Decommissioning Trusts’ names.

CPS Energy Investments In accordance with GASB Statement No. 40, the following tables address concentration of credit risk and interest rate risk exposure by investment type using the weighted-average maturity (“WAM”) method. Since CPS Energy does not hold foreign instruments in its direct investments (those held by CPS Energy), foreign currency risk is not applicable. Interest rate risk – In accordance with its Investment Policy, CPS Energy manages exposure to fair value losses resulting from rising interest rates by placing a limit on the portfolio’s WAM. The definition of WAM is the weighted-average time to return a dollar of principal based on the investments’ stated final maturity. It is used as an estimate of the interest rate risk of a fixed-income investment. The Investment Policy limits the WAM to three years or less, which allows for the management of risk while optimizing returns. CPS Energy invests securities lending cash collateral and other funds in money market mutual funds that have no fixed maturities.

47

CPS Energy FY 2016 Annual Report Concentration of credit risk – In accordance with its Investment Policy, CPS Energy manages exposure to concentration of credit risk through diversification and by limiting investment in each federal agency to 35% and investment in any other issuer of debt securities to 5% of the total fixed-income portfolio. Additionally, negotiable certificates of deposit are limited to 35% of the total portfolio per issuer. (Dollars in thousands) Investment Type U.S. Treasuries U.S. Agencies Federal Home Loan Mortgage Corp Federal National Mortgage Assn Federal Home Loan Bank Federal Farm Credit Bank Small Business Administration Municipal bonds Certificates of deposit Commercial paper Investment pools Money market mutual funds Total fixed-income portfolio

January 31, 2016

$

Carrying Value 150,924

$

155,295 130,665 129,878 133,555 9,034 110,445 49,863 124,292 250,359 1,244,310

January 31, 2015

$

Market Value 150,974

Allocation 12.13%

WAM 0.6

$

155,295 130,671 129,906 133,555 9,034 110,441 49,863 124,292 250,359 1,244,390

12.48% 10.50% 10.44% 10.73% 0.73% 8.87% 4.01% 9.99% 20.12% 100.00%

4.5 4.3 1.2 3.2 4.6 1.8 0.3 1.8

$

Carrying Value 20,348

$

132,542 100,428 177,744 143,650 11,042 61,588 496 19,992 158,141 307,529 1,133,500

$

Market Value 20,348

Allocation 1.80%

WAM 1.5

$

132,540 100,428 177,746 143,650 11,042 61,588 496 19,992 158,141 307,529 1,133,500

11.69% 8.86% 15.68% 12.67% 0.98% 5.43% 0.04% 1.77% 13.95% 27.13% 100.00%

3.3 5.7 1.8 3.3 5.7 2.0 0.1 0.1 1.8

Credit risk – In accordance with its Investment Policy, CPS Energy manages exposure to credit risk by limiting long-term debt security investments to those with a credit rating of “A-” or better. As of January 31, 2016, and January 31, 2015, CPS Energy held no debt securities with a long-term credit rating below “A-,” or equivalent, or a short-term credit rating below “A-1/P-1/F-1.” (Dollars in thousands) Credit Rating U.S. Treasuries (AA+) AAA / Aaa AA+ / Aa1 AA / Aa2 AA- / Aa3 A+ / A1 A / A2 A- / A3 Short-term: S-P1+ / MIG 1 A-1 / P-1 / F-1 Not rated1 Total fixed-income portfolio 1

January 31, 2016

$

$

Carrying Value 150,924 361,688 551,567 26,788 19,294 2,541 48,282 2,830 5,007 49,863 25,526 1,244,310

$

$

January 31, 2015

Market Value 150,974 361,688 551,587 26,788 19,294 2,541 48,296 2,830

Allocation 12.13% 29.07% 44.33% 2.15% 1.55% 0.20% 3.88% 0.23%

5,003 49,863 25,526 1,244,390

0.40% 4.01% 2.05% 100.00%

$

$

Carrying Value 20,348 378,173 574,219 16,574 18,954 5,169 60,863 333 19,992 38,875 1,133,500

$

Market Value 20,348 378,173 574,219 16,574 18,954 5,169 60,863 333

Allocation 1.80% 33.36% 50.66% 1.46% 1.67% 0.46% 5.37% 0.03%

19,992 38,875 1,133,500

1.76% 3.43% 100.00%

$

Money market mutual funds accounts and money market deposit accounts which still meet PFIA/CPS Energy Investment Policy requirements.

Decommissioning Trusts Investments As mentioned previously, the Decommissioning Trusts report their assets on a calendar-year basis; therefore, information related to the Trusts is as of December 31, 2015, and December 31, 2014. The tables in this section address interest rate risk exposure by investment type, credit risk, concentration of credit risk and foreign currency risk. All investments held by the Decommissioning Trusts are long-term in nature and are recorded at fair value. Interest rate risk – Generally, the long-term nature of the liabilities and the limited need for daily operating liquidity allow interim fluctuations in market value to occur without jeopardizing the ultimate value of the assets. Where long-term securities are held, the interim market value of assets can be sensitive to changes in interest rates. As the general level of interest rates moves up and down, the interim market value of longer-maturity bonds may change substantially.

48

CPS Energy FY 2016 Annual Report To mitigate interest rate risk, a limitation is placed on the weighted-average duration (“WAD”) of the fixed-income portfolio. WAD is defined as the weighted-average time to return a dollar of principal and interest and also incorporates potential changes in the timing of principal and interest return that may occur as a result of changes in interest rates. It makes assumptions regarding the most likely timing and amounts of variable cash flows and is used as an estimate of the interest rate risk of a fixed-income investment—especially those with payment terms dependent on market interest rates. The overall portfolio duration is limited by the Investment Policy to a deviation of no more than +/- 1.5 years from the WAD of the Investment Committee’s specified fixed-income index. The specified fixed-income index for the 28% Trust is a blended index that is based on 83.3% Barclays Capital Aggregate, 11.7% Barclays Credit A, and 5% Barclays Credit BAA; and the WAD of that blended index was 5.85 for 2015, and 5.80 for 2014. The specified fixed-income index for the 12% Trust is Barclays Capital Aggregate, which was 5.68 for 2015, and 5.55 for 2014. Concentration of credit risk – In accordance with the Investment Policy, exposure to concentration of credit risk is managed through diversification and by limiting investments in each federal agency to 30% and investments in any other single issuer of debt securities to 5% of the total fixed-income portfolio (excluding cash collateral from securities lending). Likewise, equity investments are limited to 5% of the total portfolio for any one issuer. Total other debt securities (corporate and foreign issuers) amounted to 49.4% and 47.3% of the fixed-income portfolio for the 28% Decommissioning Trust at December 31, 2015, and December 31, 2014, respectively. Total other debt securities (corporate and foreign issuers) amounted to 21.0% and 23.7% of the fixed-income portfolio for the 12% Decommissioning Trust at December 31, 2015, and December 31, 2014, respectively. The following table lists the fixed-income investment holdings by type: (Dollars in thousands) Investment Type – 28% Trust U.S. Treasuries U.S. Agencies Federal National Mortgage Assn Federal Home Loan Mortgage Corp Small Business Administration Government National Mortgage Assn Municipal bonds – Texas Municipal bonds – other states Corporate bonds Foreign bonds Money market mutual funds Total fixed-income investments Cash collateral – securities lending Total 28% Trust fixed-income portfolio

December 31, 2015 Market Value $ 26,195

Investment Type – 12% Trust U.S. Treasuries U.S. Agencies Federal National Mortgage Assn Federal Home Loan Mortgage Corp Government National Mortgage Assn Municipal bonds – Texas Municipal bonds – other states Corporate bonds Money market mutual funds Total fixed-income investments Cash collateral – securities lending Total 12% Trust fixed-income portfolio Total Trusts fixed-income portfolio

$

Allocation 10.37%

December 31, 2014 WAD 4.8

$

Market Value 29,421

Allocation 11.70%

WAD 4.2

39,349 23,765 6,769 1,094 10,985 104,714 20,162 19,496 252,529 252,529

15.58% 9.41% 2.68% 0.43% 4.35% 41.47% 7.98% 7.73% 100.00%

4.5 6.3 6.8 9.5 8.7 7.0 6.0 6.2

37,279 22,660 5,133 2,178 1,542 12,634 98,154 20,698 21,760 251,459 14,088 265,547

14.83% 9.01% 2.04% 0.87% 0.61% 5.02% 39.04% 8.23% 8.65% 100.00%

4.6 5.7 5.1 1.4 9.1 8.9 7.1 6.2 6.1

36,946

41.36%

5.4

35,620

40.11%

5.9

11,314 7,376 596 1,582 3,074 18,721 9,725 89,334 89,334

12.66% 8.26% 0.67% 1.77% 3.44% 20.96% 10.88% 100.00%

6.3 6.3 3.9 11.2 9.0 6.1 6.0

10,103 8,702 823 313 2,214 21,085 9,946 88,806 3,211 92,017

11.38% 9.80% 0.93% 0.35% 2.49% 23.74% 11.20% 100.00%

7.0 6.9 4.3 7.3 7.3 7.0 6.5

341,863

$

49

357,564

CPS Energy FY 2016 Annual Report Credit risk – In accordance with the Investment Policy, exposure to credit risk is managed by limiting all fixed-income investments to a credit rating of “BBB-”, or equivalent, or better from at least two nationally recognized credit rating agencies. If a security’s rating falls below the minimum investment grade rating of “BBB-” after it has been purchased, the Investment Policy allows investment managers to continue to hold the security as long as the total fair value of securities rated below investment grade does not exceed 5% of the total fixed-income portfolio. As noted in the following tables, which list the fixed-income holdings by credit rating, investments with a credit rating below “BBB-/Baa3” totaled 0.8% and 1.2% of the fixed-income portfolio for the 28% Trust at December 31, 2015, and 2014, respectively. There were no securities with a credit rating below “BBB-/Baa3” held in the 12% Trust at December 31, 2015, or December 31, 2014. The following table lists the fixed-income investment holdings by credit rating: (Dollars in thousands) Credit Rating – 28% Trust U.S. Treasuries (AA+) AAA / Aaa AA+ / Aa1 AA/Aa2 AA- / Aa3 A+ / A1 A/A2 A-/A3 BBB+/Baa1 BBB / Baa2 BBB-/Baa3 BB+/Ba1 BB/Ba2 BB-/Ba3 B+/B1 Total 28% Trust fixed-income portfolio

December 31, 2015 Market Value $ 26,195 45,586 71,229 3,635 7,203 4,579 14,104 20,383 26,238 21,739 9,629 640 256 887 226 252,529

Credit Rating – 12% Trust U.S. Treasuries (AA+) AAA /Aaa AA+/Aa1 AA / Aa2 AA-/Aa3 A+/A1 A/A2 A-/A3 BBB+/Baa1 BBB/Baa2 BBB-/Baa3 Total 12% Trust fixed-income portfolio Total Trusts fixed-income portfolio

36,946 13,318 19,979 1,417 2,207 3,399 2,857 5,555 1,773 1,883 89,334 $

341,863

Allocation 10.37% 18.05% 28.21% 1.44% 2.85% 1.81% 5.59% 8.07% 10.39% 8.61% 3.81% 0.25% 0.10% 0.35% 0.10% 100.00%

December 31, 2014 Market Value $ 29,421 59,380 71,629 3,670 3,041 10,029 14,534 24,156 20,210 20,565 5,636 1,865 1,176 235 265,547

41.36% 14.91% 22.36% 1.59% 2.47% 3.80% 3.20% 6.22% 1.98% 2.11% 100.00%

35,620 14,358 20,645 1,444 1,326 1,590 3,245 6,257 4,184 3,163 185 92,017 $

Allocation 11.08% 22.36% 26.97% 1.38% 1.15% 3.78% 5.47% 9.10% 7.61% 7.75% 2.12% 0.70% 0.44% 0.09% 100.00%

38.70% 15.60% 22.44% 1.57% 1.44% 1.73% 3.53% 6.80% 4.55% 3.44% 0.20% 100.00%

357,564

Foreign currency risk – With the exception of dedicated foreign-equity portfolios, all investments authorized for purchase by the Decommissioning Trusts are in U.S. dollars. This reduces the potential foreign currency risk exposure of the portfolio. All foreign bonds outstanding were issued in the U.S. and amounted to $20.2 million at December 31, 2015, and $20.7 million at December 31, 2014. In accordance with the Investment Policy, investments in international equity securities are limited to international commingled funds, American Depository Receipts and exchange-traded funds that are diversified across countries and industries. The international equity portfolio is limited to 20% of the total portfolio. Total foreign equity securities amounted to 11.1% and 11.7% of the 28% Trust’s total portfolio at December 31, 2015, and December 31, 2014, respectively. Total foreign equity securities held by the

50

CPS Energy FY 2016 Annual Report 12% Trust amounted to 3.2% and 3.4% of the Trust’s portfolio at December 31, 2015, and December 31, 2014, respectively.

3. Disaggregation of Current Accounts Receivable and Accounts Payable Accounts Receivable – Net customer accounts receivable as of January 31, 2016, included $36.6 million for unbilled revenue receivable and $187.7 million for billed utility services. Interest and other accounts receivable included $7.6 million for regulatory-related accounts receivable, $0.5 million for interest receivable and $22.6 million for other miscellaneous accounts receivable. Net customer accounts receivable as of January 31, 2015, included $37.2 million for unbilled revenue receivable and $198.3 million for billed utility services. Interest and other accounts receivable included $7.2 million for regulatory-related accounts receivable, $0.2 million for interest receivable and $27.9 million for other miscellaneous accounts receivable. Accounts Payable – At January 31, 2016, accounts payable and accrued liabilities included $212.9 million related to standard operating supplier and vendor accounts payable, including fuels payable; $37.1 million for employee-related accounts payable; $0.3 for unearned lease revenue; $39.6 million for customer-related accounts payable; $30.0 million for STP-related accounts payable; and $64.4 million for other miscellaneous accounts payable and accrued liabilities. At January 31, 2015, accounts payable and accrued liabilities included $192.8 million related to standard operating supplier and vendor accounts payable, including fuels payable; $33.6 million for employeerelated accounts payable; $33.2 million for customer-related accounts payable; $51.0 million for STPrelated accounts payable; and $66.4 million for other miscellaneous accounts payable and accrued liabilities.

4. Capital Assets, Net General Description – CPS Energy’s plant-in-service includes four power stations that are solely owned and operated by the Company. In total, there are 21 generating units at these four power stations - four are coal-fired and 17 are gas-fired. Excluding STP (nuclear units), following is a list of power stations and relative generating units as of January 31, 2016: Power Station Calaveras Braunig

Generating Units 6 8

Type Coal (4)/Gas (2) Gas

Power Station Leon Creek Rio Nogales

Generating Units 4 3

Type Gas Gas

In FY 2012, CPS Energy announced plans to mothball its J.T. Deely Units 1 and 2 coal-fired power plants in FY 2019 instead of the originally projected dates of FY 2032 and FY 2033, respectively. Therefore, depreciation for these two units was accelerated beginning in FY 2013. To continue operating the units past the announced mothball dates, the Company would have needed to install $550 million in flue gas desulfurization equipment (commonly referred to as scrubbers) to cut SO 2 emissions in order to be compliant with more stringent environmental regulations scheduled to take effect in the future. Other notable capital assets in electric and gas plant include supporting coal yard assets, a fleet of railcars, a transmission network for the movement of electric power from the generating stations to substations, electric and gas distribution systems, and metering. Included in general plant are the Energy Management

51

CPS Energy FY 2016 Annual Report Center; the main office complex; the construction and customer service centers; the Villita Assembly Building; and a fleet of automobiles, trucks and work equipment. Intangible assets consist of easements, software, a tax exemption settlement and other intangible items. Communication Towers Sale – In FY 2014, the Company entered into an agreement for $41.0 million to sell 69 existing communication towers to an independent third party, including provisions for the Company’s continued use of select space on those towers, the purchaser’s use of space in the Company’s communication shelters located near the towers, and the assignment of existing license agreements with other third parties using space on the towers. Title to 62 of the towers was conveyed to the purchaser in January 2014. Because the towers are subject to group depreciation as permitted under guidance provided in GASB Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments, no gain or loss was recognized on the sale transaction. Instead, proceeds allocated to the sale were credited to accumulated depreciation. The costs of the assets sold were retired from the capital asset accounts in which they had originally been recorded. Of the total purchase price, $3.3 million was allocated to the seven towers not initially transferred to the purchaser pending resolution of easement issues and was recorded as a current liability. Additionally, the Company recorded as a current liability $2.0 million of the total purchase price received out of escrow in FY 2015. This balance was available for the mitigation of easement issues related to the final seven towers. The combined current liability balance remaining at January 31, 2016, for both of these items was $3.8 million. Final resolution of easement issues related to the seven towers not initially transferred to the purchaser was completed in early FY 2017, resulting in the conveyance of five of those towers. Upon completion of the FY 2017 transactions, the balance of the non-refunded purchase price and unused escrow proceeds will be reclassified from a current liability to accumulated depreciation. For information on lease transactions associated with the sale of the communication towers, see Note 16 – Leases. Plant Purchase – In the first quarter of FY 2013, taxable senior lien bonds were issued to purchase the Rio Nogales combined-cycle natural gas electric generating plant in Seguin, Texas. The 800-MW plant was being utilized to provide a portion of its power to a third party that had executed a multiyear agreement, which expired in September 2015, for an option to call on power from the plant. Any remaining power is available for CPS Energy to sell into the ERCOT market or to utilize to meet its commitments. As of February 1, 2016, CPS Energy integrated the Rio Nogales plant into its rate base to provide generation capacity that will not otherwise be available once J.T. Deely Units 1 and 2 are mothballed. In conjunction with the purchase, CPS Energy entered into a Tax Exemption Settlement Agreement in which CPS Energy agreed to pay $25.5 million to certain parties to compromise, terminate claims and settle any disputes relating to exemption of ad valorem taxes involving the parties to this agreement. The payment was recorded as an intangible asset that will be amortized over the life of the agreement, which runs through December 2041. The purchase price of the Rio Nogales plant was allocated to major subsets of assets including land, transmission lines, water treatment facilities, combustion and steam turbines, and switchyard assets. Other than the plant assets, the tax exemption settlement and normal working capital settlements, CPS Energy incurred no other material acquisition costs, nor did the Company assume any material liabilities with the purchase of the plant. Impairments – On October 29, 2007, the Board approved a resolution enabling CPS Energy to participate in development activities related to new nuclear generation units to be constructed near Bay City, Texas, on a site where STP Units 1 and 2 currently operate. These generation units are referred to as STP Units 3 and 4. At January 31, 2010, CPS Energy held a 50% interest in the development. As a result of a litigation settlement with the Company’s partner in the project, Nuclear Innovation North America, Inc. (“NINA”),

52

CPS Energy FY 2016 Annual Report CPS Energy’s ownership in STP Units 3 and 4 was reduced from 50% to 7.625% effective March 1, 2010. Effective as of FY 2012, AFUDC was not being recorded for the STP Units 3 and 4 project since efforts were limited to licensing-related activities. Including AFUDC of $21.0 million, total project costs incurred by CPS Energy of $391.4 million were previously reported on the Statements of Net Position as constructionin-progress. In FY 2016, the Company reached the conclusion that as a result of sustained changes in a number of environmental and economic factors directly affecting the projected economic feasibility of completing construction of STP Units 3 and 4, the project had experienced a permanent impairment. The Company determined it was appropriate to write off the entire $391.4 million investment in STP Units 3 and 4. The impairment loss was recorded as an extraordinary item on CPS Energy’s Statements of Revenues, Expenses, and Changes in Net Position for the period ended January 31, 2016. For more detailed information on STP Units 3 and 4, see Note 14 – South Texas Project. There were no capital asset impairments identified for FY 2015. Investment in STP Units 1 and 2 – STP is currently a two-unit nuclear power plant located in Matagorda County, Texas. It is maintained and operated by the STP Nuclear Operating Company, a nonprofit Texas corporation special-purpose entity, which is financed and controlled by the owners. CPS Energy’s 40% interest in STP Units 1 and 2 is included in plant assets. See Note 14 – South Texas Project.

STP Capital Investment, Net (Dollars in thousands) January 31, 2016 STP capital assets, net Land Construction-in-progress, STP Units 1 and 2 Construction-in-progress, STP Units 3 and 4 Electric and general plant Intangibles – software Nuclear fuel Total STP capital assets, net Total CPS Energy capital assets, net STP capital investment as a percentage of total CPS Energy capital assets, net

53

$

2015

5,701 52,054 901,607 12 106,411 $ 1,065,785

$

$

5,701 57,978 391,417 923,825 12 109,194 1,488,127

$ 7,777,505

$

7,952,924

13.7%

18.7%

CPS Energy FY 2016 Annual Report Capital Asset Rollforward – The following tables provide more detailed information on the activity of CPS Energy’s net capital assets as presented on the Statements of Net Position, including capital asset activity for FY 2016 and FY 2015:

FY 2016 Capital Asset Rollforward (In thousands)

Nondepreciable assets Land Land easements Construction-in-progress Total nondepreciable assets Depreciable/amortizable assets Electric plant Gas plant General plant Intangibles Software Other Nuclear fuel Total depreciable/ amortizable assets Accumulated depreciation and amortization Electric plant Gas plant General plant Intangibles Software Other Nuclear fuel Total accumulated depreciation and amortization Capital assets, net

February 1, 2015

Additions/ Increases

Transfers In/(Out)

$

$

$

71,154 88,699 785,333 945,186

490,169 490,169

10 (399,846) (399,836)

Reductions/ Decreases $

(391,417) (391,417)

January 31, 2016 $

71,164 88,699 484,239 644,102

10,290,750 815,499 626,190

69,353 19,177 29,779

267,972 25,496 83,031

(42,189) (289) (60,279)

10,585,886 859,883 678,721

153,145 28,704 827,875

6,986 37,583

23,337 -

(8,721) (329) -

174,747 28,375 865,458

12,742,163

162,878

399,836

(111,807)

13,193,070

(4,386,247) (321,330) (238,737)

(334,826) (18,579) (43,094)

-

55,908 1,208 59,260

(4,665,165) (338,701) (222,571)

(66,140) (3,290) (718,681)

(12,775) (954) (40,366)

-

8,721 255 -

(70,194) (3,989) (759,047)

(5,734,425)

(450,594)

-

125,352

(6,059,667)

$ 7,952,924

$ 202,453

$

-

$ (377,872)

$ 7,777,505

Cash flow information – Cash paid for additions and net removal costs totaled $615.4 million. This amount includes $615.5 million in additions to construction-in-progress and electric, gas and general plant, plus net salvage and removal costs of $13.5 million, partially offset by $9.9 million in AFUDC and $3.8 million in donated assets. Other – Depreciation and amortization expense for the period totaled $410.2 million, while amortization of nuclear fuel of $40.4 million was included in fuel expense on the Statements of Revenues, Expenses and Changes in Net Position.

54

CPS Energy FY 2016 Annual Report

FY 2015 Capital Asset Rollforward (In thousands)

Nondepreciable assets Land Land easements Construction-in-progress Total nondepreciable assets Depreciable/amortizable assets Electric plant Gas plant General plant Intangibles Software Other Nuclear fuel Total depreciable/ amortizable assets Accumulated depreciation and amortization Electric plant Gas plant General plant Intangibles Software Other Nuclear fuel Total accumulated depreciation and amortization Capital assets, net

February 1, 2015

Additions/ Increases

$

$

69,279 88,633 668,985 826,897

432,391 432,391

Transfers In/(Out) $

Reductions/ Decreases

1,877 66 (316,043) (314,100)

$

(2) (2)

January 31, 2015 $

71,154 88,699 785,333 945,186

10,039,112 776,727 652,519

52,562 11,061 25,273

248,090 28,145 30,024

(49,014) (434) (81,626)

10,290,750 815,499 626,190

219,743 28,704 791,074

39 36,801

7,841 -

(74,478) -

153,145 28,704 827,875

12,507,879

125,736

314,100

(205,552)

12,742,163

(4,126,564) (304,531) (278,957)

(324,134) (17,742) (40,399)

-

64,451 943 80,619

(4,386,247) (321,330) (238,737)

(128,180) (2,271) (676,993)

(12,410) (1,102) (41,688)

-

74,450 83 -

(66,140) (3,290) (718,681)

(5,517,496) $ 7,817,280

(437,475) $

120,652

$

-

220,546 $

14,992

(5,734,425) $

7,952,924

Cash flow information – Cash paid for additions and net removal costs totaled $522.8 million. This amount includes $521.3 million in additions to construction-in-progress and electric, gas and general plant, plus net salvage and removal costs of $12.7 million, partially offset by $6.5 million in AFUDC and $4.5 million in donated assets. Other – Depreciation and amortization expense for the period totaled $395.8 million, while amortization of nuclear fuel of $41.7 million was included in fuel expense on the Statements of Revenues, Expenses and Changes in Net Position.

5. Revenue Bond and Commercial Paper Ordinances Requirements Senior Lien – As of January 31, 2016, the bond ordinances for New Series Bonds contained, among others, the following provisions: Revenue deposited in CPS Energy’s General Account shall be pledged and appropriated to be used in the following priority for: x x x x

Maintenance and operating expenses of the Systems; Payment of the New Series Bonds; Payment of prior lien bonds, including junior lien obligations; Payment of the notes and the credit agreement (as defined in the ordinance authorizing commercial paper);

55

CPS Energy FY 2016 Annual Report x Payment of any inferior lien obligations issued, which are inferior in lien to the New Series Bonds, the prior lien bonds and the notes and credit agreement; x An annual amount equal to 6% of the gross revenues of the Systems to be deposited in the Repair and Replacement Account; x Cash payments and benefits to the General Fund of the City not to exceed 14% of the gross revenues of the Systems; and x Any remaining net revenues of the Systems in the General Account to the Repair and Replacement Account, which is used to partially fund construction costs. The maximum amount in cash to be transferred or credited to the City’s General Fund from the net revenues of the Systems during any fiscal year shall not exceed 14% of the gross revenues of the Systems, less the value of gas and electric services of the Systems used by the City for municipal purposes and the amounts expended during the fiscal year for additions to the street lighting system and other authorized exclusions. The percentage of gross revenues of the Systems to be paid over, or credited to, the City’s General Fund each fiscal year shall be determined (within the 14% limitation) by the governing body of the City. The net revenues of the Systems are pledged to the payment of principal and interest on the New Series Bonds, which are classified as senior lien obligations. All New Series Bonds and the interest thereon shall have a first lien upon the net revenues of the Systems. Junior Lien – The Series Bonds are composed of two categories of debt: fixed-interest-rate and variableinterest-rate. The junior lien fixed-interest-rate Series Bonds are similar to the senior lien New Series Bonds, as they have fixed and set interest rates for the life of the bonds. The junior lien Variable-Rate Demand Obligations and Variable-Rate Note bonds are variable-interest-rate debt instruments of the City. The junior lien obligations are payable solely from, and equally and ratably secured by, a junior lien on and pledge of the net revenues of the Systems, subject and subordinate to liens and pledges securing the outstanding senior lien obligations and any additional senior lien obligations hereafter issued, and superior to the pledge and lien securing the currently outstanding commercial paper obligations, all as fully set forth in the ordinances authorizing the issuance of the junior lien obligations as noted below: The City agrees that it will at all times maintain rates and charges for the sale of electric energy, gas or other services furnished, provided and supplied by the Systems to the City and all other consumers, which shall be reasonable and nondiscriminatory and which will produce income and revenues sufficient to pay: x All operation and maintenance expenses, depreciation, replacement and betterment expenses, and other costs as may be required by Chapter 1502 of the Texas Government Code, as amended; x The interest on, and principal of, all parity bonds, as defined in the New Series Bond ordinances, as and when the same shall become due, and for the establishment and maintenance of the funds and accounts created for the payment and security of the parity bonds; x The interest on, and principal of, the prior lien bonds, including the junior lien obligations and any additional junior lien obligations hereafter issued (all as defined in the New Series Bond ordinances), as and when the same shall become due, and for the establishment and maintenance of the funds and accounts created for the payment and security of the junior lien obligations and any additional junior lien obligations; x To the extent the same are reasonably anticipated to be paid with available revenues (as defined in the ordinance authorizing the commercial paper), the interest on and principal of all notes (as defined in said ordinance), and the credit agreement (as defined in said ordinance); and x Any legal debt or obligation of the Systems as and when the same shall become due.

56

CPS Energy FY 2016 Annual Report Commercial Paper – As of January 31, 2016, the commercial paper ordinances contain, among others, the following provisions: authorized capacity of $600 million, ability to issue tax-exempt or taxable commercial paper, ability to issue multiple series notes and final maturity on November 1, 2042. To secure the payment of commercial paper principal and interest, a pledge is made of: x Proceeds from − The sale of bonds and additional notes issued for such purposes, and − The sale of Project Notes; x Loans under and pursuant to a revolving credit agreement; and x The net revenues of the Systems, after payment on New Series Bond requirements and prior lien bond obligations.

6. Revenue Bonds On July 3, 2014, CPS Energy issued $200.0 million of Series 2014 Junior Lien Revenue Bonds. The true interest cost for this issue, which has maturities in 2026 through 2044, is 4.14%. Bond proceeds were used to fund construction projects. On November 5, 2014, CPS Energy issued $262.5 million of Series 2014 Junior Lien Revenue Refunding Bonds. Proceeds, including the $37.3 million premium associated with the bonds, were used to refund the $294.6 million par value of the New Series 2005 Senior Lien Revenue Refunding Bonds. The refunding transaction resulted in a net present value debt service savings of $36.0 million, or 12.21% of the par amount of the bonds being refunded. The true interest cost for this issue, which has maturities in 2016 through 2020, is 1.22%. On December 1, 2014, CPS Energy remarketed $47.1 million of the Series 2012A Variable-Rate Junior Lien Revenue Refunding Bonds. The issuance of a $1.3 million premium in conjunction with the remarketing resulted in a principal paydown for the remarketed bonds of approximately $1.0 million. These bonds have maturities in 2024 through 2027. The coupon rate for these bonds is 2.0%, with a current yield of 1.27%. On January 7, 2015, CPS Energy issued $125.0 million in Series 2015A Variable-Rate Junior Lien Revenue Refunding Bonds and $125.0 million in Series 2015B Variable-Rate Junior Lien Revenue Refunding Bonds. Proceeds were used to refund the $250.0 million par value of the 2003 Junior Lien Variable-Rate Demand Obligations. The bonds have maturities in 2029 through 2033. The bonds were issued as multimodal variable-rate instruments issued initially in a Securities Industry and Financial Markets Association (“SIFMA”) Index Mode with an applicable spread of 0.28% and 0.38% through their term rate periods of 2017 and 2018, and at a stepped rate of 8.0% for each series thereafter through applicable final maturity. The stepped rate is applicable only if the bonds are not remarketed before their respective expiration dates. On August 13, 2015, CPS Energy issued $320.5 million of New Series 2015 Senior Lien Revenue Refunding Bonds. Proceeds, including the $43.3 million premium associated with the bonds, were used to refund $339.5 million par value of the Series 2007 Revenue Bonds. The refunding transaction resulted in a net present value debt service savings of $36.9 million, or 10.87% of the par amount of the bonds being refunded. The true interest cost for this issue, which has maturities in 2018 through 2032, is 2.99%. On December 1, 2015, CPS Energy remarketed $47.7 million of Series 2012B Variable-Rate Junior Lien Revenue Refunding Bonds. The issuance of a $0.5 million premium in conjunction with the remarketing resulted in a principal paydown for the remarketed bonds of approximately $0.2 million. The bonds have

57

CPS Energy FY 2016 Annual Report maturities in 2024 through 2027. The coupon rate for these bonds is 1.8%, with a current yield of 1.41% and true interest cost of 5.79%, which reflects stepped interest rate provisions applicable to the bonds. On December 3, 2015, CPS Energy issued $235.0 million of New Series 2015 Fixed-Rate Revenue Bonds, including a premium of $12.9 million. The true interest cost for this issue, which has maturities in 2026 through 2039, is 3.48%. The bonds were issued with interest rates varying from 3% to 5%. Bond proceeds are primarily being used to fund construction projects. Also on December 3, 2015, CPS Energy issued $200.0 million of Variable-Rate Junior Lien Revenue Bonds, $100.0 million each of Series 2015C and Series 2015D, including a total premium of $12.9 million. Reflecting stepped interest rate provisions applicable to the bonds, the true interest cost for these bonds, which have maturities in 2038 through 2045, is 6.26% for the Series 2015C bonds and 5.99% for the Series D bonds. The bonds were issued as multi-modal variable-rate instruments with initial term rates of 3% and a stepped rate of 8%, which is only applicable if the bonds are not remarketed before their respective expiration dates. Bond proceeds are primarily being used to fund construction projects.

Revenue Bond Summary (Dollars in thousands)

Tax-exempt new series bonds Taxable new series bonds

Issues

Maturities

Weighted-Average Yield on Outstanding Bonds at January 31, 2016

2006B-2015

2017-2039

4.3%

2009C1, 2010A1 and 2012

2026-2042

4.1% 4.2%

1,276,000 3,506,420

1,276,000 3,411,620

2010A1, 2010B1

2034-2041

4.0%

500,000

500,000

2012A, 2012B, 2012C 2015A, 2015B, 2015C and 2015D

2024-2045

1.6%

592,445

392,610

2013, 2014

2017-2048

4.7% 4.4%

809,500 1,901,945

837,530 1,730,140

5,408,365 160,000

5,141,760 149,270

Total new series bonds Taxable series bonds Tax-exempt variable-rate series bonds

Tax-exempt series bonds Total series bonds

January 31, 2016 $

Total long-term revenue bonds outstanding Less: Current maturities of bonds Total revenue bonds outstanding, net of current maturities 1

$

2,230,420

5,248,365

2015 $

$

2,135,620

4,992,490

Direct Subsidy Build America Bonds

Build America Bonds Direct Subsidy – The ARRA of 2009 provided authority for the issuance of BABs, which were issuable in calendar years 2009 and 2010 as taxable bonds. The ARRA permitted the issuer or the issuer’s paying agent to receive a subsidy payment equal to 35% of the bond’s interest directly from the U.S. Department of the Treasury. Pursuant to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, the federal government reduced the BABs subsidy by 8.7% for payments made during the period beginning March 1, 2013, through their fiscal year ended September 30, 2013. In February 2014, the federal government sequestration for BABs subsidy payments was extended through August 31, 2025. The subsidy was reduced by 7.2% for payments made during the period beginning October 1, 2013, through the federal government’s fiscal year ended September 30, 2014. The subsidy was reduced by 7.3% for payments made during the period October 1, 2014, through September 30, 2015. For payments made during the period October 1, 2015, through September 30, 2016, the subsidy is being reduced by 6.8%. After a sequestration reduction totaling $1.8 million, the total subsidy received for the 2009C and 2010A Senior Lien BABs and the 2010A and 2010B Junior Lien BABs was $24.3 million in FY 2016. In

58

CPS Energy FY 2016 Annual Report FY 2015, the total subsidy received for the 2009C and 2010A Senior Lien BABs and the 2010A and 2010B Junior Lien BABs was $24.2 million, which included a reduction totaling $1.9 million. As of January 31, 2016, principal and interest amounts due for all revenue bonds outstanding for each of the next five years and thereafter to maturity are: (In thousands) Fiscal Year 2017 2018 2019 2020 2021 2022-2026 2027-2031 2032-2036 2037-2041 2042-2046 2047-2048 Totals

Principal 160,000 156,810 172,460 180,900 181,150 1,027,060 784,945 1,025,055 1,275,325 390,975 53,685 $ 5,408,365

$

Interest 261,659 262,129 261,629 257,725 253,866 1,142,214 907,307 665,020 351,482 74,859 4,059 $ 4,441,949

$

Direct Subsidy $ (24,355) (24,355) (24,355) (24,355) (24,355) (122,662) (130,659) (119,399) (47,891) $ (542,386)

Total 397,304 394,584 409,734 414,270 410,661 2,046,612 1,561,593 1,570,676 1,578,916 465,834 57,744 $ 9,307,928 $

The above table includes senior lien and junior lien bonds. Interest on the senior lien bonds and the junior lien fixed-rate bonds is based upon the stated coupon rates of each series of bonds outstanding. The direct subsidy associated with the BABs has been presented in a separate column and includes the impact of sequestration. CPS Energy has taken the position that the BABs direct subsidy should be deducted when calculating total debt service since the subsidy is received directly by the trustee to be used solely for BABs debt service payments. The Series 2012A and 2012C Junior Lien Bonds were issued as variable-rate bonds that utilize interest rates of 2.0% through their term rate period’s expiration in 2018 and 2016, respectively. A stepped rate of 7.0% is assumed in the table above for each series thereafter through applicable final maturity. The Series 2012B bonds were issued as variable-rate bonds that utilize an interest rate of 1.75% through their term rate period's expiration in 2018. A stepped rate of 8% is assumed in the table above for this series thereafter through applicable final maturity. The stepped rate is applicable only if the bonds are not remarketed by their respective expiration date. The Series 2015A and Series 2015B Junior Lien Bonds were issued as multi-modal variable-rate bonds issued initially in a SIFMA Index Mode with an applicable spread of 0.28% and 0.38%, respectively, through their term rate periods of 2017 and 2018 and at a stepped rate of 8.0% for each series thereafter through applicable final maturity. In the table above, interest on these variable-rate bonds is calculated at an assumed rate of 3.0% for the applicable initial interest period and at an assumed stepped rate of 8.0% thereafter through stated maturity. The stepped rate is applicable only if the bonds are not remarketed by their respective expiration date. The Series 2015C and Series 2015D Junior Lien Bonds were issued as multi-modal variable-rate bonds initially issued in a term rate mode as variable-rate bonds that utilize an interest rate of 3% through their term rate period's expiration in 2019 and 2020, respectively. A stepped rate of 8% is assumed in the table above for each series thereafter through applicable final maturity. The stepped rate is applicable only if the bonds are not remarketed by their respective expiration date. Pursuant to guidance provided in GASB Statement No. 65, debt reacquisition costs meet neither the definition of an asset nor a liability and are therefore required to be classified as deferred outflows or

59

CPS Energy FY 2016 Annual Report inflows of resources on the Statements of Net Position. Debt reacquisition costs reported as deferred outflows of resources totaled $65.6 million at January 31, 2016, and $65.2 million at January 31, 2015. These amounts are amortized as components of interest expense over the shorter of the remaining life of the refunding or the refunded debt. CPS Energy, as a rate-regulated entity and in accordance with guidance found in GASB Statement No. 62, establishes regulatory assets for debt issuance costs that would otherwise be required to be expensed in accordance with GASB Statement No. 65. This regulatory accounting treatment results in the amortization of these costs over the life of the related debt. Debt issuance costs, which are reported within other noncurrent assets on the Statements of Net Position, totaled $33.6 million at January 31, 2016, and $31.6 million at January 31, 2015.

FY 2016 Long-Term Debt Activity (Dollars in thousands) Original Amount Revenue and refunding bonds 2006B tax-exempt 2007 tax-exempt 2007 tax-exempt 2008 tax-exempt 2008A tax-exempt 2009A tax-exempt 2009C taxable 2009D tax-exempt 2010A taxable 2010A taxable – Junior Lien 2010B taxable – Junior Lien 2011 tax-exempt 2012 taxable 2012 tax-exempt 2012A tax-exempt – Junior Lien 2012B tax-exempt – Junior Lien 2012C tax-exempt – Junior Lien 2013 tax-exempt – Junior Lien 2014 tax-exempt – Junior Lien 2014 tax-exempt – Junior Lien 2015A tax-exempt – Junior Lien 2015B tax-exempt – Junior Lien 2015 tax-exempt – Senior Lien 2015 tax-exempt – Senior Lien 2015C tax-exempt – Junior Lien 2015D tax-exempt – Junior Lien Bonds outstanding Current maturities (Discount) premium Revenue bonds, net Commercial paper, tax-exempt Long-term debt, net

$

128,845 46,195 403,215 287,935 158,030 442,005 375,000 207,940 380,000 300,000 200,000 50,915 521,000 655,370 48,170 47,815 47,660 375,000 200,000 262,530 125,000 125,000 320,530 235,000 100,000 100,000

Final Principal Payment

True Interest Cost (%)

2021 2018 2032 2032 2016 2034 2039 2021 2041 2041 2037 2017 2042 2025 2027 2027 2027 2048 2044 2020 2033 2033 2032 2039 2045 2045

3.974 4.159 4.575 4.582 3.736 4.863 3.944 3.720 3.834 3.806 4.101 1.599 4.382 2.552 Variable Variable Variable 4.753 4.142 1.220 Variable Variable 2.992 3.476 Variable Variable

Variable

60

Balance Outstanding 2-1-15

Additions During Year

Decreases During Year

Balance Outstanding 1-31-16

$

$

$

(11,145) (13,460) (364,335) (22,185) (14,110) (35,495) (47,815) (28,030) (536,575)

$

(46,521) (583,096) (583,096)

(160,000) 261,963 5,510,328 360,000 $ 5,870,328

55,655 46,195 388,380 287,935 22,185 425,920 375,000 203,065 380,000 300,000 200,000 50,915 521,000 655,370 47,135 47,815 47,660 375,000 200,000 262,530 125,000 125,000 5,141,760

(149,270) 238,891 5,231,381 360,000 $ 5,591,381

$

47,650 320,530 235,000 100,000 100,000 803,180 (10,730) 69,593 862,043 862,043

$

44,510 32,735 24,045 287,935 411,810 375,000 203,065 380,000 300,000 200,000 15,420 521,000 655,370 47,135 47,650 47,660 375,000 200,000 234,500 125,000 125,000 320,530 235,000 100,000 100,000 5,408,365

CPS Energy FY 2016 Annual Report

FY 2015 Long-Term Debt Activity (Dollars in thousands) Original Amount Revenue and refunding bonds 2002 tax-exempt 2002 tax-exempt 2003 tax-exempt – Junior Lien 2005 tax-exempt 2006A tax-exempt 2006B tax-exempt 2007 tax-exempt 2007 tax-exempt 2008 tax-exempt 2008A tax-exempt 2009A tax-exempt 2009C taxable 2009D tax-exempt 2010A taxable 2010A taxable – Junior Lien 2010B taxable – Junior Lien 2011 tax-exempt 2012 taxable 2012 tax-exempt 2012A tax-exempt – Junior Lien 2012B tax-exempt – Junior Lien 2012C tax-exempt – Junior Lien 2013 tax-exempt – Junior Lien 2014 tax-exempt – Junior Lien 2014 tax-exempt – Junior Lien 2015A tax-exempt – Junior Lien 2015B tax-exempt – Junior Lien Bonds outstanding Current maturities (Discount) premium Revenue bonds, net Commercial paper, tax-exempt Long-term debt, net

$

436,090 140,615 250,000 294,625 384,185 128,845 46,195 403,215 287,935 158,030 442,005 375,000 207,940 380,000 300,000 200,000 50,915 521,000 655,370 48,170 47,815 47,660 375,000 200,000 262,530 125,000 125,000

Final Principal Payment

True Interest Cost (%)

2017 2015 2033 2020 2025 2021 2018 2032 2032 2016 2034 2039 2021 2041 2041 2037 2017 2042 2025 2027 2027 2027 2048 2044 2020 2033 2033

4.055 4.751 Variable 4.379 4.555 3.974 4.159 4.575 4.582 3.736 4.863 3.944 3.720 3.834 3.806 4.101 1.599 4.382 2.552 Variable Variable Variable 4.753 4.142 1.220 Variable Variable

Variable

Balance Outstanding 2-1-14

Additions During Year

Decreases During Year

$

$

$

68,135 10,525 250,000 294,625 16,920 66,270 46,195 402,130 287,935 45,695 439,500 375,000 203,065 380,000 300,000 200,000 50,915 521,000 655,370 48,170 47,815 47,660 375,000 5,131,925

(157,035) 210,323 5,185,213 360,000 $ 5,545,213

$

47,135 200,000 262,530 125,000 125,000 759,665 63,728 823,393 823,393

$

(68,135) (10,525) (250,000) (294,625) (16,920) (10,615) (13,750) (23,510) (13,580) (48,170) (749,830) 7,765 (35,160) (777,225) (777,225)

Balance Outstanding 1-31-15 $

$

55,655 46,195 388,380 287,935 22,185 425,920 375,000 203,065 380,000 300,000 200,000 50,915 521,000 655,370 47,135 47,815 47,660 375,000 200,000 262,530 125,000 125,000 5,141,760 (149,270) 238,891 5,231,381 360,000 5,591,381

7. Commercial Paper and Related Revolving Credit Agreements In 1988, the San Antonio City Council adopted an ordinance authorizing the issuance of up to $300 million in tax-exempt commercial paper. The current ordinances allow for the issuance of three separate series of commercial paper to provide funding to assist in the interim financing of eligible projects in an aggregate amount not to exceed $600 million to the extent of support from liquidity facilities. Effective June 26, 2013, there was a total of $600 million in liquidity support. The ordinances allow for the issuance of taxable, as well as tax-exempt, commercial paper. Eligible projects include fuel acquisition, capital improvements to the Systems, and refinancing or refunding any outstanding obligations which are secured by and payable from a lien and/or a pledge of net revenues of the Systems. Such pledge of net revenues is subordinate and inferior to the pledge securing payment of existing senior lien and junior lien obligations. Scheduled maximum maturities cannot extend beyond November 1, 2042. The commercial paper has been classified as long-term in accordance with the refinancing terms under three revolving credit agreements with a consortium of banks, which support the commercial paper program. Each revolving credit agreement relates to a particular series of notes and provides liquidity support therefore in the amount specified. The Series A agreement, which provides $150 million in liquidity support for the Series A Notes, is effective through February 6, 2017. The Series B agreement, which provides $225 million in liquidity support for the Series B Notes, is effective through June 24, 2016.

61

CPS Energy FY 2016 Annual Report The Series C agreement, which provides $225 million in liquidity support for the Series C Notes, is effective through June 23, 2017. Under the terms of these revolving credit agreements, CPS Energy may borrow up to an aggregate amount not to exceed $600 million for the purpose of paying principal due under the commercial paper program. At January 31, 2016, there was no amount outstanding under the revolving credit agreements. Further, there have been no borrowings under the agreements since inception of the program. As of January 31, 2016, and January 31, 2015, the outstanding commercial paper balance was $360.0 million, all of which was tax-exempt.

Commercial Paper Summary (Dollars in thousands)

Commercial paper outstanding New money issues Weighted-average interest rate of outstanding Average life outstanding (number of days)

$ $

January 31, 2016 2015 360,000 $ 360,000 $ 0.1% 0.1% 70 90

8. Flexible Rate Revolving Note In FY 2010, the San Antonio City Council adopted an ordinance authorizing the establishment of the FRRN Private Placement Program, under which CPS Energy may issue taxable or tax-exempt notes, bearing interest at fixed or variable rates in an aggregate principal amount at any one time outstanding not to exceed the currently effective limit of $26 million, reduced in FY 2016 from $100 million. This ordinance provides for funding to assist in the interim financing of eligible projects that include the acquisition or construction of improvements, additions or extensions to the Systems, including capital assets and facilities incident and related to the operation, maintenance and administration of fuel acquisition and development and facilities for the transportation thereof; capital improvements to the Systems; and refinancing or refunding of any outstanding obligations secured by the net revenues of the Systems; or with respect to the payment of any obligation of the Systems pursuant to any credit. Under the program, maturity dates cannot extend beyond November 1, 2028. On May 10, 2010, CPS Energy issued a $25.2 million taxable Flexible Rate Revolving Note, Series A, under its taxable Note Purchase Agreement with JPMorgan Chase Bank, N.A., which currently serves as the note purchaser under the program. On May 11, 2010, the proceeds from the note, along with cash, were used to defease $25.7 million in principal amounts of the allocable portion of the debt associated with the common facilities of STP Units 1 and 2 that were assigned to NINA in March 2010 when CPS Energy reduced its ownership share of STP Units 3 and 4 to 7.625%. The outstanding FRRN balance at both January 31, 2016, and January 31, 2015, was $25.2 million. The FRRN has been classified as current in accordance with the financing terms under the taxable Note Purchase Agreement and is reported on the Statements of Net Position under current maturities of debt. At January 31, 2016, only the taxable facility was being utilized through the taxable Note Purchase Agreement. The taxable notes are being secured by a pledge of investment collateral and a limited, subordinate and inferior lien on and pledge of net revenues in the amount of $0.1 million. The current taxable Note Purchase Agreement will expire on December 31, 2016, but through an annual renewal process may be extended through November 1, 2028.

62

CPS Energy FY 2016 Annual Report

9. Employee Pension Plan Plan Description – The City Public Service Pension Plan (the “Plan”) is a self-administered, singleemployer, defined-benefit contributory pension plan covering substantially all employees who have attained age 21 and completed one year of service. It is sponsored by and may be amended at any time by CPS Energy, acting by and through the Oversight Committee, which includes the President and CEO, the Chief Financial Officer, and the Audit Committee of the Board. Plan assets are segregated from CPS Energy’s assets and are separately managed by the Administrative Committee, whose members are appointed by the Oversight Committee. The Plan reports results on a calendar-year basis, and the separately audited financial statements, which contain historical trend information, may be obtained at www.cpsenergy.com or by contacting Benefit Trust Administration at CPS Energy. The Plan’s financial statements include certain disclosures related to CPS Energy’s net pension liability. However, because the financial reporting and pension measurement dates for the Plan and CPS Energy are not aligned, the Plan’s disclosures will vary from information provided by CPS Energy in this footnote and in the accompanying RSI. In addition to the defined-benefit Plan, CPS Energy has two Restoration Plans that were effective as of January 1, 1998, which supplement benefits paid from the Plan due to Internal Revenue Code restrictions on benefit and compensation limits. The benefits due under those Restoration Plans have been paid annually by CPS Energy. Employees who retired prior to 1983 receive annuity payments from an insurance carrier, as well as some benefits directly from CPS Energy. The costs for the benefits directly received from the Company were $0.02 million for FY 2016 and $0.04 million for FY 2015. These costs were recorded when paid. Benefits Provided – Participants become fully vested in the benefits of the Plan upon attainment of age 40 or after completion of seven years of vesting service before age 40. Normal retirement age is 65; however, early retirement is available with 25 years of benefit service, as well as to those employees who are age 55 or older with at least ten years of benefit service. Plan benefits consist of a normal retirement annuity calculated based primarily on length of service and compensation. Benefits are reduced for retirement before age 55 with 25 years or more of benefit service or before age 62 with less than 25 years of service. If early retirement occurs due to disability, the reductions in benefits normally associated with early retirement are modified. Payments to retirees are adjusted each year by an amount equal to 50% of the change in the Consumer Price Index-U, limited to a maximum adjustment of 5% each year, with no reduction allowed below the retirees’ initial benefit levels. The following table presents information about Plan participants covered by the benefit terms. Participants providing the basis of the actuarial valuations used to calculate, as of the measurement dates, the net pension liability for the fiscal years ended January 31, 2016, and 2015, were: January 31, 2016 Active participants Participants currently receiving benefits Participants entitled to deferred benefits Total plan participants

3,273 2,076 121 5,470

2015 3,357 2,015 113 5,485

Contributions – The current policy of CPS Energy is to use an actuarial valuation as the basis for determining employer contributions to the Plan during the fiscal year beginning thirteen months after the

63

CPS Energy FY 2016 Annual Report valuation date. The January 1, 2014, valuation is the basis for contributions in FY 2016. With recommendations from the Administrative Committee, composed of a cross-functional group of active and retired CPS Energy employees, the Company establishes funding levels, considering annual actuarial valuations. Generally, participating employees contribute 5.0% of their total compensation, commencing with the effective date of participation and continuing until normal or early retirement, completion of 44 years of benefit service, or termination of employment. Participants who leave CPS Energy service before becoming eligible for retirement benefits receive a return of the total amount they contributed to the Plan, plus the vested portion of accumulated interest. Beginning January 1, 2012, the employee contribution interest crediting rate was 5.75%. The balance of Plan contributions is the responsibility of CPS Energy, giving consideration to actuarial information, budget controls, legal requirements, compliance, and industry and/or community norms. For FY 2016 and FY 2015, the amount to be funded was established using a general target near the 30-year funding contribution level as determined by the Plan’s actuary using the entry-age normal cost method. Net Pension Liability – CPS Energy’s net pension liability at January 31, 2016, and January 31, 2015, was measured as of January 31, 2015, and January 31, 2014, respectively. The total pension liability used to calculate the net pension liability was determined by actuarial valuations as of January 1, 2014, and January 1, 2013, rolled forward using generally accepted actuarial procedures to the January 31, 2015, and January 31, 2014, measurement dates, respectively.

Changes in Net Pension Liability (In thousands) Fiscal Year Ended January 31, 2016 2015 Total pension liability Service cost Interest cost Changes in Plan benefits Changes in assumptions Differences between expected and actual experience Benefit payments Net change in total pension liability

$

Total pension liability, beginning of period Total pension liability, end of period

Net pension liability, end of period

$

1,584,060 1,652,796

Plan fiduciary net position Employer contributions Participant contributions Earnings on Plan assets Benefit payments Net change in Plan fiduciary net position Plan fiduciary net position, beginning of period Plan fiduciary net position, end of period

32,591 117,802 38,296 (35,634) (84,319) 68,736

33,417 116,155 (24,410) (74,352) 50,810 1,533,250 1,584,060

(55,800) (12,140) (85,520) 84,319 (69,141)

(44,400) (12,569) (145,883) 74,352 (128,500)

(1,317,300) (1,386,441)

(1,188,800) (1,317,300)

$

266,355

$

266,760

CPS Energy recorded $37.4 million and $40.0 million in pension expense for the years ended January 31, 2016, and 2015, respectively.

64

CPS Energy FY 2016 Annual Report Actuarial Assumptions – Significant actuarial assumptions used in the January 31, 2014, valuation include a rate of return on the investment of present and future assets of 7.50%, a discount rate on Plan liabilities of 7.50%, annual projected salary increases averaging 5.01% per year, and annual postretirement cost-of-living increases of 1.5%. The projected salary increases include an inflation rate of 3.0%. Mortality rates were based on the RP-2000 Combined Healthy Annuitant Mortality Table for Males or Females, as appropriate, projected using Scale BB. Significant changes to the January 1, 2014, valuation, compared to the January 1, 2013, valuation include a decrease in the rate of return on the investment of present and future assets from 7.75% and a decrease in the discount rate on Plan liabilities from 7.75%. Changes also include a decrease in projected salary increases from an average of 5.03% per year; a change in the mortality projection scale; and other demographic assumptions for projecting salary increases, participant marital status and retiree spouse age difference. The actuarial assumptions used in the January 1, 2014, valuation for amounts reported in FY 2016 were based on the results of an actuarial experience study completed in 2014 covering experience for the period January 1, 2009, through December 31, 2013. The January 1, 2013, valuation included actuarial assumptions that were based on an actuarial experience study completed in 2010 covering experience for the period June 1, 2004, through December 31, 2009. The long-term expected rate of return on Plan investments was determined based on a blend of historical performance data and future expectations for each major asset class, while also reflecting current capital market conditions, developed on a geometric basis. An economic simulation method was used in which best-estimate ranges of expected future rates of return (expected returns net of Plan investment expense) for each major asset class were combined using simulations that ensure the economic consistency of each individual trial, and then reduced by a factor representing inflation to produce long-term expected real rates of return for each major asset class. The assumed allocation and expected real rates of return for each major asset class are summarized in the following table: Assumed Asset Allocation Asset Class Domestic equity International equity U.S. government and corporate bonds Real estate Cash equivalents Total investments

55.2% 10.7% 19.6% 10.5% 4.0% 100.0%

Expected Real Rate of Return 5.5% 5.4% 1.0% 3.8% -

Discount Rate – The discount rate used to measure the total pension liability for FY 2016 and FY 2015 was 7.50% and 7.75%, respectively. The projection of cash flows used to determine the discount rate assumed that future employee contributions will be made at the current contribution rate and that future CPS Energy contributions will be made in a manner consistent with the current contribution practices. Based on those assumptions, the Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on Plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

65

CPS Energy FY 2016 Annual Report The following table presents the sensitivity of net pension liability calculation to a 1% increase and a 1% decrease in the discount rate used to measure the total pension liability: Discount Rate Sensitivity (In thousands) Net Pension Liability at January 31, 2016 2015 Discount rate 1% decrease - 6.50% Current discount rate - 7.50% 1% increase - 8.50%

$467,628 266,355 94,728

1% decrease - 6.75% Current discount rate - 7.75% 1% increase - 8.75%

$

-

458,305 266,760 103,793

Plan Fiduciary Net Position – Detailed information about the Plan’s fiduciary net position is available in the separately issued Plan financial statements. For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, pension expense, information about the fiduciary net position for the Plan and additions to/deductions from the Plan’s fiduciary net position have been determined on the same basis as they are reported by the Plan. Investments are stated at fair market value. Benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the terms of the Plan. Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pension – The following table presents information about the pension-related deferred outflows of resources and deferred inflows of resources for CPS Energy at January 31, 2016, and January 31, 2015: (In thousands) January 31, 2016 Deferred outflows of resources Differences between projected and actual earnings on pension assets Changes in assumptions Differences between expected and actual experience in the measurement of total pension liability Employer’s contributions to the Plan subsequent to the measurement of total pension liability Total deferred outflows of resources Deferred inflows of resources Differences between projected and actual earnings on pension assets Changes in assumptions Differences between expected and actual experience in the measurement of total pension liability Total deferred inflows of resources

$

32,826

2015

$

14,376

$

46,000 93,202

17,970

$

55,800 73,770

$ (21,206) -

$ (35,099) -

(53,800) $ (75,006)

(28,684) $ (63,783)

The following table presents the future amortization of pension-related deferred outflows of resources and deferred inflows of resources, excluding the balance attributable to the employer’s contribution to

66

CPS Energy FY 2016 Annual Report the Plan in the current fiscal year and subsequent to the net pension liability measurement date. The deferred outflows of resources balance for such contribution amounts at the end of a fiscal period are recognized fully as adjustments to the net pension liability in the subsequent fiscal year. Amortization of Pension-Related Deferred Outflows/Inflows of Resources (In thousands) Year ended January 31, 2017 2018 2019 2020 2021 Thereafter Total

$

(2,946) (15,194) (9,906) 2,967 (3,106) 381 $ (27,804)

10. Other Postemployment Benefits Plan Descriptions – The Company provides certain health and welfare benefits for active and retired employees through the City Public Service Group Health and Group Life Insurance Plans, and CPS Energy Long Term Disability Income Plan (collectively, “Employee Benefit Plans”). CPS Energy employees and their dependents may elect to participate in the plans and most employees continue eligibility upon retirement from the Company. Disclosures included in this footnote are limited to information related only to those benefits provided on a postemployment basis. Assets of the postemployment benefit plans are held in three separate, single-employer contributory plans: x City Public Service Group Health Plan (“Health Plan”)—a defined-benefit contributory group health plan that provides health, dental and vision insurance benefits. x City Public Service Group Life Insurance Plan (“Life Plan”)—a defined-benefit contributory plan that provides life insurance benefits. x CPS Energy Long Term Disability Income Plan (“Disability Plan”)—a defined-benefit contributory plan that provides disability income benefits. The Employee Benefit Plans may be amended at any time by CPS Energy, acting by and through an Oversight Committee, which includes the President and CEO, the Chief Financial Officer, and the Audit Committee of the Board. The Employee Benefit Plans’ assets are segregated from CPS Energy’s assets and are separately managed by an Administrative Committee whose members are appointed by the Oversight Committee. The plans report results on a calendar-year basis and issue separately audited financial statements that may be obtained by contacting Benefit Trust Administration at CPS Energy. The Health Plan’s net position was $245.3 million at December 31, 2015, and $242.1 million at December 31, 2014. The Life Plan’s net position was $47.0 million at December 31, 2015, and $50.3 million at December 31, 2014. The Disability Plan’s net position was $3.9 million at December 31, 2015, and $4.4 million at December 31, 2014. Funding Policy – The funding requirements for both the plan participants and the employer are established by and may be amended by CPS Energy. Funding is based on projected pay-as-you-go financing requirements, with an additional amount to prefund benefits as determined annually by the Company. The current policy of CPS Energy is to use each actuarial valuation as the basis for determining monthly employer contributions to the plans during the fiscal year beginning thirteen months after the valuation date. The January 1, 2014, valuation was the basis for contributions in FY 2016.

67

CPS Energy FY 2016 Annual Report Retired employees contribute to the Health Plan in varying amounts depending upon an equity formula that considers age and years of service. Individuals who retired before February 1, 1993, contribute a base rate plus 2.25% of the difference between that amount and the aggregate rate for each year that the sum of age and service is less than 95. Those who retired on or after February 1, 1993, contribute a base rate plus a percentage of the CPS Energy contribution, based on the number of years of service, if they retire with less than 35 years. Retirees and covered dependents contributed $6.8 million in FY 2016 and $6.1 million in FY 2015 for their health insurance benefits. The Company’s contributions in relation to the annual required contribution ("ARC") were 11.5% of covered payroll in FY 2016 and 1.3% of covered payroll in FY 2015. The Medicare Prescription Drug Improvement and Modernization Act of 2003, which was effective January 1, 2006, established prescription drug coverage for Medicare beneficiaries known as Medicare Part D. One of the provisions of Medicare Part D entitled the Health Plan to receive retiree drug subsidy payments from the federal government to offset pharmacy claims paid by the Health Plan on behalf of certain plan participants. These payments totaled $0.9 million for FY 2016 and FY 2015. In accordance with GASB Technical Bulletin 2006-01, Accounting and Financial Reporting by Employers for Payments from the Federal Government Pursuant to the Retiree Drug Subsidy Provisions of Medicare Part D, future projected payments from the federal government have not been used to lessen total projected obligations under the Company’s Health Plan. Active employees contribute to the Life Plan at a rate of $0.13 per $1,000 of insurance per month on amounts in excess of $20,000. Employees who retired prior to February 1, 1993, contribute at a rate of $0.13 per $1,000 of insurance per month on amounts in excess of $20,000 plus 2.25% of the difference between that amount and the aggregate rate for retiree coverage for each year the sum of retirement age and service is less than 95. Those who retired on or after February 1, 1993, contribute $0.13 per $1,000 of insurance per month on amounts in excess of $20,000 plus a percentage of the CPS Energy contribution, based on number of years of service, if they retire with less than 35 years. Retirees and covered dependents contributed $0.3 million in FY 2016 and FY 2015. Based on the funded status of the Life Plan, the Company made no contributions in relation to the ARC in FY 2016 and FY 2015. Beginning February 1, 2014, the Disability Plan is funded by a combination of employee and employer contributions. Active employee contribution rates are determined by CPS Energy and may be adjusted on an annual basis. The Company's contributions are determined on a discretionary basis and are generally based on actuarial valuation calculations. Retired employees are not eligible to participate and therefore do not contribute to the Disability Plan. Prior to FY 2015, the Disability Plan was funded completely by CPS Energy. The Company’s contributions in relation to the ARC were 0.1% of covered payroll in FY 2016 and FY 2015. Annual OPEB Cost and Net OPEB Obligation – CPS Energy’s annual OPEB cost is calculated based on the ARC of the employer, an amount actuarially determined in accordance with the parameters of GASB Statement No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. 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 (or funding excess) over a period not to exceed 30 years. The annual OPEB cost consists of the ARC, interest on the net OPEB obligation, and adjustments to the ARC for the Health, Life and Disability Plans. The January 1, 2014, and January 1, 2013, actuarial valuations are the basis for annual OPEB cost of $13.7 million for FY 2016 and $8.8 million for FY 2015, respectively. The following table shows the components of the Company’s annual OPEB cost for FY 2016 and FY 2015, the contributions in relation to the ARC, and changes in the net OPEB obligation for each of the plans. The

68

CPS Energy FY 2016 Annual Report net OPEB obligation may be either positive, reflecting a liability, or negative, reflecting an asset. The term net OPEB obligation, as used in this note, refers to either situation. (In thousands) Health Plan FY 2016 Annual required contribution Interest on net OPEB obligation Adjustment to annual required contribution Annual OPEB cost Contributions in relation to ARC Increase (decrease) in net OPEB obligation Net OPEB obligation – beginning of year Net OPEB obligation – end of year

$

$

FY 2015 Annual required contribution Interest on net OPEB obligation Adjustment to annual required contribution Annual OPEB cost Contributions in relation to ARC Increase (decrease) in net OPEB obligation Net OPEB obligation – beginning of year Net OPEB obligation – end of year

$

$

Life Plan

12,816 (391) 476 12,901 (27,800) (14,899) (5,213) (20,112)

8,216 (805) 963 8,374 (3,200) 5,174 (10,387) (5,213)

$

$

$

$

Disability Plan

561 (50) 61 572 572 (670) (98)

$

227 (71) 85 241 241 (911) (670)

$

$

$

Total

164 (78) 96 182 (175) 7 (1,044) (1,037)

$

$

176 (82) 99 193 (175) 18 (1,062) (1,044)

$

$

13,541 (519) 633 13,655 (27,975) (14,320) (6,927) (21,247)

8,619 (958) 1,147 8,808 (3,375) 5,433 (12,360) (6,927)

CPS Energy’s annual OPEB cost, the percentage of annual OPEB cost contributed and the net OPEB obligation for FY 2016, FY 2015 and FY 2014 for each of the plans were as follows: (Dollars in thousands) Health Plan FY 2016 Annual OPEB cost Percentage of annual OPEB cost contributed Net OPEB obligation FY 2015 Annual OPEB cost Percentage of annual OPEB cost contributed Net OPEB obligation FY 2014 Annual OPEB cost Percentage of annual OPEB cost contributed Net OPEB obligation

$

12,901

Life Plan

Disability Plan

$

572

$

215.5% $ (20,112)

$

(98)

$

$

8,374

$

241

$

$

38.2% (5,213)

$

(670)

$

$

6,625

$

115

$

$

85.7% (911)

$

16.7% $ (10,387)

69

182 96.2% (1,037)

193 90.7% (1,044)

221 116.3% (1,062)

Total $

13,655

204.9% $ (21,247)

$

8,808

$

38.3% (6,927)

$

6,961

21.0% $ (12,360)

CPS Energy FY 2016 Annual Report Funded Status and Funding Progress – CPS Energy began partial funding of projected future benefits in 1992. The funded status of the plans as of the January 1, 2014, valuation date was as follows: (Dollars in thousands) Health Plan1 Actuarial value of plan assets (a) Actuarial accrued liability (b) Unfunded actuarial accrued liability (funding excess) (b) - (a) Funded ratio (a) / (b) Covered payroll (c) Unfunded actuarial accrued liability (funding excess) as a percentage of covered payroll ([(b) - (a)] / (c))

Life Plan2

Disability Plan2

$ 242,994 280,655

$

45,928 43,544

$

4,516 4,960

$

$

(2,384)

$

444

37,661

86.6% $ 242,652

105.5% $ 218,939

91.1% $ 218,939

15.5%

-1.1%

0.2%

1

The unfunded actuarial accrued liability (funding excess) does not reflect the projected future payments expected to be received from the federal government for Medicare Part D retiree drug cost subsidies.

2

CPS Energy has selected the aggregate cost method for determining Life and Disability Plan funding amounts. Since this method does not identify or separately amortize unfunded actuarial liabilities, information about the funded status and funding progress has been prepared using the entry-age normal actuarial cost method, which approximates the funding progress of the plans.

The schedules of funding progress, presented as RSI following the notes to the financial statements, present 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. Actuarial Methods and Assumptions – Actuarial valuations of ongoing plans 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. Amounts determined regarding the funded status of the plans and the ARC of the employer are subject to continued revision as actual results are compared with past expectations and new estimates are made about the future. Projections of benefits for financial reporting are based on the substantive plans (the plans as understood by the employer and plan members) and include the types of benefits provided for at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. For the Health Plan, the actuarial cost method used was the projected-unit-credit actuarial cost method. For the Life and Disability Plans, the aggregate actuarial cost method was used to determine the cost of benefits. Since this method does not identify or separately amortize unfunded actuarial liabilities, information about funded status and funding progress was prepared using the entry-age normal actuarial cost method, which is intended to approximate the funding progress of the plans. The amortization method used for all three plans was the level-dollar open method, with an amortization period of 20 years. The asset valuation method used for all three plans was the five-year smoothed market

70

CPS Energy FY 2016 Annual Report valuation method. The January 1 valuation results each year are used to determine the contributions for the fiscal year commencing in the succeeding calendar year. Significant actuarial assumptions used in the calculations for the January 1, 2014, actuarial valuation for FY 2016 included: (a) a rate of return on the investment of present and future assets of 7.50% for the Health, Life and Disability Plans, (b) a Consumer Price Index increase of 3.0% per year for the Life and Disability Plans, (c) projected annual base salary increases for the Health Plan ranging from 4.0% to 9.5% depending on age and projected average annual salary increases of 5.01% for the Life and Disability Plans, and (d) overall medical and prescription cost increases projected at 7.5% and 8.5%, respectively, for 2014, decreasing annually to 5.5% and 6.0%, respectively, in 2019 and thereafter. Significant changes to the January 1, 2014, valuation assumptions, compared to the January 1, 2013, valuation for the Health, Life and Disability Plans include a decrease in the rate of return on the investment of present and future assets from 7.75%, a decrease in the discount rate on Plan liabilities from 7.75% and a decrease in projected salary increases for the Health Plan from a range of 3.6% to 9.9% per year. The Health Plan also reflects modifications in assumptions regarding annual retiree medical costs. New OPEB Accounting Guidance – In 2015, GASB issued Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. This statement replaces the requirements of GASB Statement No. 45, Accounting and Financial Reporting by Employers for Post Employment Benefits Other Than Pensions, as amended, and GASB Statement No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans. This Statement establishes new accounting and financial reporting requirements for governments whose employees are provided with OPEB, including the recognition and measurement of liabilities, deferred outflows of resources, deferred inflows of resources and expense. For each qualifying plan providing postemployment benefits other than pensions, employers are required to report the difference between the actuarial OPEB liability and the related plan’s fiduciary net position as net OPEB liability on the statement of net position. Additionally, Statement No. 75 sets forth note disclosure and required supplementary disclosure requirements for defined contribution OPEB. The provisions of GASB Statement No. 75 will be adopted by CPS Energy beginning in the fiscal year ending January 31, 2018. The adoption of this new standard will be recognized retroactively for all periods reported concurrently with FY 2018. The Company has initiated an evaluation of the impact that adoption of this statement will have on its financial statements.

11. Other Obligations and Risk Management Other Liabilities – CPS Energy maintains other obligations as noted on the following tables. The relative long-term portion of these obligations compared to the total was 93.1% as of January 31, 2016, and 94.5% as of January 31, 2015.

71

CPS Energy FY 2016 Annual Report FY 2016 Other Liabilities Rollforward (In thousands)

STP decommissioning STP decommissioning net costs refundable

Balance Outstanding 2-1-2015

Additions During Year

Decreases During Year

$ 420,587 124,907 545,494

$ 18,019 29,128 47,147

$ (22,748) (43,255) (66,003)

35,966 23,185 91,825 3,650 7,730 2,816 20,937 26,402 15,440 227,951

24,725 7,037 13,530 272 135 203 34,259 25,544 19,034 124,739

(22,439) (3,892) (22,593) (2,460) (98) (203) (37,005) (15,653) (16,866) (121,209)

$ 773,445

$ 171,886

$ (187,212)

Other Customer deposits Operating reserves STP pension and OPEBs Pollution remediation liability Project Warm Notes payable Customer advances Fuel hedges Other Total other liabilities Total other long-term liabilities

Balance Outstanding 1-31-2016 $

415,858 110,780 526,638

Amounts Due within One Year $

-

Noncurrent Balance Outstanding $

415,858 110,780 526,638

38,252 26,330 82,762 1,462 7,767 2,816 18,191 36,293 17,608 231,481

22,678 3,272 198 362 5,160 20,461 247 52,378

758,119

$ 52,378

$

Balance Outstanding 1-31-2015

Amounts Due within One Year

Noncurrent Balance Outstanding

$

$

$

15,574 23,058 82,762 1,264 7,767 2,454 13,031 15,832 17,361 179,103 705,741

FY 2015 Other Liabilities Rollforward (In thousands)

STP decommissioning STP decommissioning net costs refundable Other Customer deposits Operating reserves STP pension and OPEBs Pollution remediation liability Project Warm Notes payable Customer advances Unearned lease revenue Fuel hedges Other Total other liabilities Total other long-term liabilities

Balance Outstanding 2-1-2014

Additions During Year

$

$

393,211 105,167 498,378

Decreases During Year

57,966 52,234 110,200

$ (30,590) (32,494) (63,084)

34,049 25,671 85,831 1,437 7,709 3,019 20,089 407,970 11,527 597,302

22,437 10,010 42,852 3,354 161 17 27,833 44,093 21,708 172,465

(20,520) (12,496) (36,858) (1,141) (140) (220) (26,985) (407,970) (17,691) (17,795) (541,816)

$ 1,095,680

$ 282,665

$ (604,900)

420,587 124,907 545,494 35,966 23,185 91,825 3,650 7,730 2,816 20,937 26,402 15,440 227,951

$

773,445

-

$

21,577 2,932 2,134 203 653 15,250 42,749 $

42,749

420,587 124,907 545,494 14,389 20,253 91,825 1,516 7,730 2,613 20,284 11,152 15,440 185,202

$

730,696

Insurance and Reserves – CPS Energy is exposed to various risks of loss including, but not limited to, those related to torts, theft or destruction of assets, errors and omissions, and natural disasters. CPS Energy maintains property and liability insurance programs that combine self-insurance with commercial insurance policies to cover major risks. The property insurance program provides $6.7 billion of replacement-value coverage for property and boiler machinery loss, including comprehensive automobile coverage, and fire damage coverage for construction equipment and valuable papers. The deductible for the property insurance policy is $5 million per occurrence with a secondary deductible of $1 million per occurrence applicable to non-power-plant property locations. The liability insurance program includes: x $100 million of excess general liability coverage over a retention amount of $3 million; x $25 million of fiduciary liability coverage;

72

CPS Energy FY 2016 Annual Report x $100 million of employment practices liability coverage; and x Other property and liability insurance coverage, which includes commercial crime, employee travel and event insurance. CPS Energy also manages its own workers’ compensation program. To support this program, $35 million of excess workers’ compensation coverage over a retention amount of $3 million is maintained. No claims settlements exceeded insurance coverage and there were no decreases in coverage in FY 2016, FY 2015 or FY 2014. Actuarial studies are performed periodically to assess the adequacy of CPS Energy insurance reserve retentions. Actuarial valuations include nonincremental claims expenses. An actuarial study was last performed during the third quarter of FY 2015. In the following table, the remaining balance under the property reserve column at January 31, 2016, relates to estimated obligations for the cleanup, closure and post-closure care requirements of the Company’s landfills. CPS Energy has seven landfill sites, four of which are at full capacity. The estimates for landfills, surface impoundment and ash ponds liability are based upon capacity to date and are subject to change due to inflation or deflation, as well as new developments in technology, applicable laws or regulations. Under CPS Energy’s reserve program, all claims are recorded against the reserve. FY 2015 and FY 2016 Reserve Rollforward (In thousands)

Employee & Public Liability Claims Balance – FY 2014 Payments Other claims adjustments Balance – FY 2015 Payments Other claims adjustments Balance – FY 2016

$

$

18,678 (4,371) 1,400 15,707 (3,248) 6,018 18,477

Property Reserves $

$

5,201 480 5,681 469 6,150

Total $

23,879 (4,371) 1,880 21,388 (3,248) 6,487 $ 24,627

Counterparty Risk – CPS Energy is exposed to counterparty risk associated with various transactions primarily related to debt, investments, fuel hedging, suppliers and wholesale power. Counterparty risk is the risk that a counterparty will fail to meet its obligations in accordance with terms and conditions of its contract with CPS Energy. CPS Energy has policies and practices in place to ensure the solvency of counterparties is assessed accurately, monitored regularly and managed actively through its Enterprise Risk Management & Solutions Division.

12. Other Financial Instruments Fuel Hedging – The 1999 Texas utility deregulation legislation, Senate Bill 7, contains provisions modifying the PFIA to allow municipal utilities the ability to purchase and sell energy-related derivative instruments in order to hedge or mitigate the effect of market price fluctuations of natural gas, fuel oil and electric energy. In 2002, CPS Energy began hedging its exposure to changes in natural gas prices, with the

73

CPS Energy FY 2016 Annual Report goal of controlling fuel costs to native load customers and stabilizing the expected cash flows associated with wholesale power transactions. CPS Energy reports its derivative instruments in accordance with GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, which addresses recognition, measurement and disclosures related to derivative instruments. CPS Energy does not use derivative instruments for speculative purposes. The only derivative instruments entered into are for the purposes of risk mitigation; therefore, these instruments are considered potential hedging derivative instruments under GASB Statement No. 53. On August 24, 2015, the Board reaffirmed the Energy Price Risk Management Policy, which sets forth the guidelines for the purchase and sale of certain financial instruments and certain physical products, collectively defined as hedge instruments. The essential goal of the Energy Price Risk Management Policy is to provide a framework for the operation of a fuel and energy price hedging program to better manage CPS Energy’s risk exposure in order to stabilize pricing and costs for the benefit of CPS Energy and its customers. In accordance with the requirements of GASB Statement No. 53, all fuel hedges are reported on the Statements of Net Position at fair value. The fair value of option contracts is determined using New York Mercantile Exchange (“NYMEX”) closing settlement prices as of the last day of the reporting period. For fixed-price contracts, the fair value is calculated by deriving the difference between the closing futures prices on the last day of the reporting period and the futures or basis swap purchase prices at the time the positions were established. See additional disclosures regarding fuel hedge fair values at Note 13 – Fair Value Measurement. All hedging derivative instruments were evaluated for effectiveness at January 31, 2016, and at January 31, 2015. The instruments were categorized into two broad groups for the purposes of this testing. In one category, hedges utilize natural gas forwards and options that are priced based on the underlying Henry Hub natural gas price, while the physical gas is typically purchased at prices based on either the Western Area Hub Association (“WAHA”) or the Houston Ship Channel (“HSC”). Therefore, effectiveness testing was based on the extent of correlation between the first of the month index prices of natural gas at each of these locations and the settlement price at Henry Hub. The correlation coefficient was established by GASB Statement No. 53 as the critical term to be evaluated, with 0.8944 established as the minimum standard tolerated. The testing, based on two different location hubs (WAHA and HSC), demonstrated a substantial offset in the fair values, as evidenced by their calculated R values, 0.9824 and 0.9940, respectively, indicating that the changes in cash flows of the derivative instruments substantially offset the changes in cash flows of the hedgeable item. Additionally, the substantive characteristics of the hedge have been considered, and the evaluation of this effectiveness measure has been sufficiently completed and documented such that a different evaluator, using the same method and assumptions, would reach substantially similar results. In the second category, hedges utilize both Henry Hub based natural gas forwards and locational basis swaps to the appropriate natural gas hub (WAHA or HSC) with volumes matching the underlying expected physical transaction. Considering the substantive characteristics of these hedge transactions, these instruments were tested for effectiveness utilizing the consistent critical terms method prescribed under GASB Statement No. 53. In FY 2016, as a result of revisions to the expected volumes of some underlying wholesale physical transactions, it was determined that a group of existing financial hedge positions in this category were no longer effective. Offsetting financial positions were executed and the fair value of the ineffective hedges resulted in a loss totaling $0.9 million, which was recognized as a reduction in investment income. All other hedging derivative instruments in both effectiveness testing categories were determined to be

74

CPS Energy FY 2016 Annual Report effective in substantially offsetting the changes in cash flows of the hedgeable items at January 31, 2016, and January 31, 2015. As of January 31, 2016, the total fair value of outstanding hedge instruments was a net liability of $36.3 million. Fuel hedging instruments with a fair value of $(20.5) million are classified on the Statements of Net Position as a component of current accounts payable and accrued liabilities. Long-term fuel hedging instruments with a fair value of $(15.8) million are classified as a component of other noncurrent liabilities. As of January 31, 2015, the total fair value of outstanding hedge instruments was a net liability of $26.4 million. Fuel hedging instruments with a fair value of $(15.2) million are classified on the Statements of Net Position as a component of current accounts payable and accrued liabilities. Long-term fuel hedging instruments with a fair value of $(11.2) million are classified as a component of other noncurrent liabilities. Consistent with hedge accounting treatment required for derivative instruments that are determined to be effective in offsetting changes in the cash flows of the hedged item, changes in fair value are reported as deferred outflows or deferred inflows of resources on the statements of net position until the contract expiration that occurs in conjunction with the hedged expected fuel purchase transaction. When fuel hedging contracts expire, at the time the purchase transactions occur, the deferred balance is recorded as an adjustment to fuel expense. The deferred outflows of resources related to fuel hedges totaled $37.9 million at January 31, 2016, and $29.8 million at January 31, 2015. Following is information related to CPS Energy’s outstanding fuel hedging derivative instruments:

Fuel Derivative Transactions as of January 31, 2016 (Dollars in thousands)

Type of Transaction Natural Gas Swap Natural Gas Swap Natural Gas Call Option Natural Gas Put Option Natural Gas Put Option HSC Basis Swap HSC Basis Swap HSC Gas Daily Swap WAHA Gas Daily Swap EIA1 On-Highway Diesel Swap

Long Short Long Long Short Long Short Long Long Long

1 2

Referenced Index Henry Hub Henry Hub Henry Hub Henry Hub Henry Hub Henry Hub Henry Hub Henry Hub Henry Hub FTOH2 Diesel

Duration Feb 2016 through Jan 2019 Feb 2016 through Jun 2018 Feb 2016 through Jan 2019 Jul 2016 through Mar 2017 Feb 2017 through Jan 2019 Feb 2016 through Jan 2019 Jun 2016 through Jun 2018 Feb 2016 through Feb 2016 Feb 2016 through Feb 2016 Feb 2016 through Mar 2016

Volumes 40,155,340 MMBtu 5,015,419 MMBtu 12,936,987 MMBtu 770,000 MMBtu 6,626,103 MMBtu 20,647,398 MMBtu 2,875,419 MMBtu 493,000 MMBtu 493,000 MMBtu 672,000 gallons

Fair Value $ (34,888) 2,254 1,252 37 (2,460) (2,037) 219 (5) (20) (644) $ (36,292)

FY 2016 Change in Fair Value $ (8,586) 1,369 (1,436) (75) (985) (405) 219 (5) (20) (644) $ (10,568)

Fair Value $ 591 (26,302) 885 56 (1,632) $ (26,402)

FY 2015 Change in Fair Value $ (3,502) (29,188) 2,449 (3) (1,486) $ (31,730)

Energy Information Administration Flat Tax On-Highway

Fuel Derivative Transactions as of January 31, 2015 (Dollars in thousands)

Long Long Short Long Long

Type of Transaction Natural Gas Call Option Natural Gas Swap Natural Gas Swap Natural Gas Put Option HSC Basis Swap

Referenced Index Henry Hub Henry Hub Henry Hub Henry Hub Henry Hub

Duration Feb 2014 through Jan 2018 Feb 2014 through Jun 2018 Feb 2014 through Feb 2016 Feb 2014 through Mar 2015 Feb 2014 through Nov 2017

75

Volumes 10,611,666 MMBtu 38,765,856 MMBtu 2,333,658 MMBtu 40,000 MMBtu 21,888,926 MMBtu

CPS Energy FY 2016 Annual Report In the event purchased options are allowed to expire, the related premiums paid to acquire those options will be lost. When a short position is established and options are sold, premiums are received and an obligation to honor the terms of the option contract, if exercised, is created. The decision to exercise the options or let them expire rests with the purchasing party. Futures contracts represent a firm obligation to buy or sell the underlying asset. If held to expiration, the contract holder must take delivery of, or deliver, the underlying asset at the established contract price. Basis swap contracts represent a financial obligation to buy or sell the underlying delivery point basis. If held to expiration, the financial difference determined by mark-to-market valuation must be settled on a cash basis. Only if expressly requested in advance may an exchange for physical assets take place. Credit Risk – CPS Energy executes over-the-counter hedge transactions directly with approved counterparties. These counterparties are generally highly rated entities that are leaders in their respective industries. CPS Energy monitors the creditworthiness of these entities on a daily basis and manages the resulting financial exposure via a third-party, vertically integrated risk system. Contractual terms with each existing counterparty vary, but each is structured so that, should the counterparty’s credit rating fall below investment grade, no unsecured credit would be granted and the counterparty would be required to post collateral for any calculated credit exposure. In the event of default or nonperformance by counterparties, brokers or NYMEX, the operations of CPS Energy could be materially affected. However, CPS Energy does not expect these entities to fail to meet their obligations given the level of their credit ratings and the monitoring procedures in place with which to manage this risk. As of January 31, 2016, the exposure to all hedge-related counterparties was such that no material counterparty credit risk existed. Termination Risk – For CPS Energy’s fuel hedges that are executed over the counter directly with approved counterparties, the possibility exists that one or more of these derivative instruments may end earlier than expected, thereby depriving CPS Energy of the protection from the underlying risk that was being hedged or potentially requiring CPS Energy to make a significant termination payment. This termination payment between CPS Energy and its counterparty is determined based on current market prices. In the event a transaction is terminated early, CPS Energy would likely be able to replace the transaction at current market prices with similar, although not exact, terms with one of its other approved counterparties. Basis Risk – The Company is exposed to basis risk on its fuel hedges because the expected commodity purchases being hedged will price based on a pricing point (HSC or WAHA) different than that at which the contracts are expected to settle (Henry Hub). For January 2016, the HSC price was $2.23 per MMBtu, the WAHA price was $1.99 per MMBtu and the Henry Hub price was $2.37 per MMBtu. Congestion Revenue Rights – In the normal course of business, CPS Energy acquires Preassigned Congestion Revenue Rights (“PCRRs”) and Congestion Revenue Rights (“CRRs”) as a hedge against congestion costs. The CRRs are purchased at semi-annual and monthly auctions at market value. NonOpt-In Entities are granted the right to purchase PCRRs annually at a percentage of the cost of CRRs. While PCRRs exhibit the three characteristics of derivatives as defined in GASB Statement No. 53, they are generally used by CPS Energy as factors in the cost of transmission. Therefore, these PCRRs meet the normal purchases and sales scope exception and are thus reported on the Statements of Net Position at cost and classified as prepayments. From time to time, the Company purchases PCRRs and sells them at the same auction at market price. In this case, the PCRRs are considered investments and the gain is reported as investment income. Gains on the sale of PCRRs totaled $2.2 million and $2.3 million for FY 2016 and FY 2015, respectively. Securities Lending – Until early FY 2016, CPS Energy and the Decommissioning Trusts engaged in securities lending transactions under a contract with their lending agent, Frost Bank. Authority to engage

76

CPS Energy FY 2016 Annual Report in these transactions is granted under each entity’s Investment Policy. CPS Energy and the Decommissioning Trusts are authorized to loan up to 70% and 100%, respectively, of their eligible investments in securities lending transactions. The securities lending program with Frost Bank was discontinued effective April 1, 2015. GASB Statement No. 28, Accounting and Financial Reporting for Securities Lending Transactions, provides guidance for entities reporting and disclosing securities lending transactions. This guidance includes reporting certain securities lending collateral on the statement of net position as an asset, with a corresponding liability for the obligation to repay the collateral. In securities lending transactions, CPS Energy and the Decommissioning Trusts, through their lending agent, transferred securities to broker-dealers in exchange for collateral and simultaneously agreed to return the collateral for the same securities at termination of the security loan. Cash collateral received from the borrower was invested entirely in money market mutual funds. The liquidity provided by the money market mutual funds allowed for the easy return of collateral at the termination of a security loan. Lending income was earned if the returns on the cash collateral invested exceeded the rebate paid to borrowers of the securities. The income was then shared with the lending agent to cover its fees based on a contractually negotiated rate split. However, if the investment of the cash collateral did not provide a return exceeding the rebate or if the investment incurred a loss of principal, part of the payment to the borrower came from CPS Energy’s or the Decommissioning Trusts’ resources and the lending agent based on the rate split. Loans that were collateralized with securities generated income when the borrower paid a loan premium for the securities loaned. This income was split at the same ratio as the earnings for cash collateral. The collateral pledged to CPS Energy or the Decommissioning Trusts for the loaned securities was held by the lending agent. Those securities were not available to the Company or the Decommissioning Trusts for selling or pledging unless the borrower was in default of the loan. Any collateral received was required to have a fair value of at least 102% of the loaned securities. Securities were marked to market daily and additional cash or securities were required from the borrower if the market value of the collateral fell below 100%. Cash collateral was reported on the Statements of Net Position as an asset, with a corresponding liability for the obligation to repay the cash collateral. Noncash collateral for securities lending activities was not recorded as an asset because it remained under the control of the transferor, except in the event of default. In the event of default, where the borrower was unable to return the securities loaned, CPS Energy and the Decommissioning Trusts authorized the lending agent to seize the collateral held. The collateral would then be used to replace the borrowed securities where possible. Due to some market conditions, it was possible that the original securities could not have been replaced. The lending agent indemnified CPS Energy and the Decommissioning Trusts from any loss due to borrower default in the event that collateral was not sufficient to replace the securities. At January 31, 2015, neither CPS Energy nor the Decommissioning Trusts had any credit risk exposure to borrowers because the amounts the Company and the Decommissioning Trusts owed to borrowers exceeded the amounts the borrowers owed. There were no violations of legal or contractual provisions nor were there any borrower or lending agent default losses related to securities lending in FY 2016 or FY 2015.

77

CPS Energy FY 2016 Annual Report CPS Energy Investment Securities and Collateral Because the program was terminated, none of the Company’s securities were out on loan to brokerdealers at January 31, 2016. Income generated from securities lending transactions amounted to $0.2 million in FY 2016, of which 30.0% was paid as fees to the lending agent. At January 31, 2015, there was a total of $212.5 million in securities, or 18.7% of the Company’s investments, out on loan to broker-dealers. In exchange, the Company received $216.9 million in securities collateral, or 102.1% of the market value of the corre