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Investment Policy

The CLWA Board of Directors annually adopts an Investment Policy for the Agency that
conforms to the California State Law, Agency ordinances and resolutions, prudent money
management and the “prudent person” standards. The objectives of the Investment Policy are
safety, liquidity and yield. SCWD funds are normally invested in the State Treasurer’s Local
Agency Investment Fund, the Los Angeles County Pooled Investment Fund, Certificates of
Deposit, Government Agency Obligations or other specifically authorized investments.

Debt Management Policy

On October 14, 2009, the Agency Board of Directors approved SCWD’s Debt Management
Policy which includes SCWD’s written guidelines and restrictions that affect the amount and
type of debt issued, the issuance process and the management of the debt portfolio. The policy
is designed to provide justification for the structure of debt issuance, identify policy goals and
demonstrate a commitment to long-term financial planning for the retail water system. The
Derivatives Policy and the Build America Bonds Compliance Policy supplement the Debt
Management Policy.

Purchasing and Bidding Policy

On April 14, 2010, the Agency Board of Directors approved SCWD’s Purchasing and Bidding
Policy to more cost effectively and efficiently construct works of improvement and acquire goods
and services needed for the operation, maintenance and improvement of the retail system.
SCWD’s Purchasing and Bidding Policy distinguishes retail procurement and contracting
procedures from those followed for CLWA’s wholesale operations and is designed in
accordance with the County Water District Law (Water Code Section 30000 et seq.).

Long-Term Commitments

The following is a description of SCWD’s long-term debt obligations:

Interfund Loan

CLWA acquired Santa Clarita Water Company’s (SCWC) stock through condemnation in
September 1999. CLWA acquired SCWC’s stock in 1999 at a purchase price of $63 million.
The acquisition was treated as an Interfund Loan. At the time of the purchase, the CLWA
Financial Advisor prepared a financial analysis of SCWC’s cash flow. This analysis showed that
it was financially feasible to fund the acquisition of the company with its own revenue stream.
Santa Clarita Water Division (SCWD) is repaying the loan plus interest at a rate of 5.04%.
SCWD began making payments on the loan in FY 2000/01. In 2006, the Board of Directors
formally adopted a payment schedule that includes quarterly payments to minimize accrued
interest, smoothes payments throughout each fiscal year and allows the growth in customers to
fund the increase in payments. This schedule is intended to provide financial stability to both
CLWA and SCWD and consistent and definitive information for long-range forecasts. The
payments increase by $100,000 each fiscal year with the provision that, if necessary due to
financial condition of the retail division, SCWD may make payments for interest only or pay an
amount in excess of the scheduled payment. The interest rate would remain the same at
5.04%.

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