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1. ../ Financing the facilities will initially be secured by the land (likely through issuance of land secured debt of RIPFA) until the utility begins operation and revenue bonds can be issued. Revenues are based on retail rates that are initially equivalent to or slightly lower than, PG&E's retail rates, due to cost recovery tariffs that LID may be required to pay. However, over time the more efficient operation of LID should allow rates to be lowered below PG&E's projected rates. The attached economic analysis from Advanced Energy Strategies, Inc. (Exhibit "C") indicates there is sufficient value generated from the LID operations to offer service at lower rates. There are two general types of facilities for an electric distribution utility. The first type is the distribution facilities themselves. The second type is the interconnection with the neighboring transmission grid. The distribution facilities will be located within the boundaries of LID, while the location of the interconnection facilities will be determined in conjunction with the grid owner through negotiations once the LID service territory is established and a detailed distribution infrastructure plan has been developed for the service territory based on the planned development absorption. The initial grid interconnection and initial distribution facilities will be constructed as soon as the River Islands development commences. It is anticipated this will occur during 2005 or 2006. Distribution facilities will be extended as required by development in the LID service territory. The River Islands development(through mitigation measures required of the City of Lathrop) will ensure that all electric distribution service is provided by underground facilities located in joint dry utility trenches. The limited electric facilities that exist in the proposed annexation area are all above ground. The majority of these existing facilities will eventually be removed as part of the development of River Islands, and new underground facilities will be built to serve new developments and potentially some of the remaining customers. The existing 12kv overhead facilities that will need to be removed are fed radially from either a source to the south or a source to the east of the annexation area. Removal of the existing facilities will not have any impact whatsoever on service to areas outside of the proposed annexation area. The isolation of LID and its annexation area from other growth areas (physical barriers, such as the San Joaquin River system and political barriers, such as the Primary Zone of the legal Delta where urban growth is prohibited) limits,or precludes, growth by LID in these adjacent areas that may otherwise be caused by development in the LID service area. The existing electric facilities in the annexation area are more then adequate to serve the current customers in the area. There are currently approximately 20 customers in the current service area. The existing facilities are completely inadequate for carrying electricity to the urban development approved by the City of Lathrop that will result in many thousands of customers in the area. The 7