tability uring hange CENTRAL ARIZONA PROJECT ANNUAL REPORT

Transcription

1 tability uring hange CENTRAL ARIZONA PROJECT ANNUAL REPORT

2 To Our Constituents Introduction External Milestones Internal Milestones Financial Highlights The CAWCD Board Contents

3 02Letter To Our Constituents: Central Arizona Project (CAP) delivered 1,548,024 acre-feet of water to its customers in Maricopa, Pima and Pinal counties in That made CAP a solid and dependable organization as compared to the chaos that seemed to take over most businesses and even governmental agencies caused by the financial and economic meltdown. As Arizonans watched 2008 unfold it seemed that virtually everything we knew and depended upon no longer was stable. The state went from being ranked 22 nd in employment growth to 48 th in the nation. The median price of resale homes in the Phoenix area went from about $223,000 to $175,000. In addition, 49 percent of homes sold in greater Phoenix were sold at a loss and almost 38 percent of home sales were foreclosures. Despite the wild gyrations of the economy and the horrible images of layoffs and financial failures and the changes it brought to residents and their lifestyle, CAP stood resolute and strong. CAP demonstrated its dependability as it continued to deliver its steady supply of water for users in Maricopa, Pinal and Pima counties. Among the many actions taken in 2008 to preserve, protect and increase Arizona s share of Colorado River water were: > Beginning desalination studies and talks with Mexico as a potential partner. 03

4 > Finding new water supplies is the objective of the ADD Water process. ADD Water, which stands for Acquisition, Development and Delivery of new water supplies, is a combined effort between CAP staff and stakeholders to find the next bucket of water, determine who will buy it and how it will be apportioned among the customers. The study is scheduled to be complete in > Working cooperatively with stakeholders to develop comprehensive computers models to accurately project and predict the impacts of climate change on the Colorado River. > Exploring the impact of legislation that will change CAP s carbon footprint and actively exploring acquisition of power from sources, including alternative power sources such as solar. < Increasing the volume of the Colorado River is the goal of multiple augmentation efforts. Some of the efforts include the construction of the Drop 2 Reservoir which will save an estimated 70,000 acre-feet per year and cloud seeding which could yield an additional 500,000 to 1 million acre-feet of water each year. These are only a few of the external efforts CAP dealt with in Internally, CAP s leadership made great strides. Quagga mussels have settled with the system and CAP has embarked upon an extensive monitoring program and continues to study ways to eradicate them. Unit 6 at Mark Wilmer Pumping Plant was placed back in service after an 18 month outage. The motor failed to start in 2007 as a result of a grounding fault in the B phase stator coil. The replacement cost of the stator coil was about $2.7 million. Employees also made gains in A 14-member CAP Safety Vision Support Team has been formed to focus and facilitate improvement of the safety culture. The 2008 Health and Safety Expo offered all employees the opportunity to manage their health through on-site expos that featured a health risk assessment and vendor fair. Thanks to all of our elected Board members, our employees, customers and stakeholders for collaborating with us to make 2008 a truly exceptional year. We look forward to 2009 and beyond as we deliver water and improve our reputation as a regional water supplier, manager, and problem solver with the best interests of Arizona in mind. Susan Bitter Smith Susan Bitter Smith S U S A N B I T T E R S M I T H P R E S I D E N T, C A W C D B O A R D O F D I R E C T O R S David V. Modeer David V Modeer D A V I D V. M O D E E R G E N E R A L M A N A G E R, C A P 04 05

5 06Introduction Change Most say change is good. It presents challenges, new opportunities, the ability to reinvent ourselves, to live life differently. However, when change is rapid and unrelenting, it becomes something to fear and many people pull back, cling to what they have and try to ride out the wild variations that are impacting their lives. In 2008, the United States and Arizona underwent the rapid, unrelenting kind of change and it looks as though it will not soon stop or even slow down. At the beginning of 2008 there were signs of financial problems but many of the economic indicators were not sounding an alarm. For example, the employment growth ranking of all metro areas greater than 1 million had Phoenix- Mesa ranked 10th in 2007 according to Arizona State University and the U.S. Bureau of Labor Statistics. By year s end, it was 28th. On a national scale, it was no better. Arizona ranked 22nd in its employment rank among the 50 states in By 2008, Arizona had fallen to 48th. The financial and economic meltdown had started. Businesses began to pull back and layoffs became common. Consumers had too much debt, not enough traditional savings and when the job losses began, they could no longer remain in their homes. At the beginning of 2008, the median price of resale homes in the greater Phoenix area was about $223,000, according to economic and real estate consultants Elliott D. Pollack & Company. By the end of the third quarter (latest numbers In greater Phoenix, almost 49 percent of homes were sold at a loss and, of those, almost 38 percent were foreclosures. During September of 2008 in greater Phoenix, almost half of all resale homes were homes that had gone into foreclosure. 07

6 available) the price had fallen to $175,000. It seemed as though buyers were as rare as snowfall collecting on a saguaro in Phoenix. So the housing market essentially died in 2008 as many people lost their homes. About one-third of all homes sold in the U.S. were sold at a loss and more than 18 percent of home sales were foreclosures. During September of 2008 in greater Phoenix, almost half of all resales were foreclosures. A major problem was that the normal in migration, that is, the number of people moving into the area rather than leaving, declined. The Phoenix metro area normally averages a 3.5 or 3.6 percent increase in population, according to RL Brown who has been tracking home sales and shifts in the housing market for many years. In 2008, the population increase was 1.2 percent. Yet, through all the wild gyrations of the economy and the changes to lives and lifestyles it is bringing to people, the Central Arizona Project (CAP) has not changed. Throughout the year CAP maintained its supply of water for Maricopa, Pinal and Pima counties. It continued to deliver the life-sustaining water necessary to Arizona despite the downturn in the economy and the changes it caused. CAP has been, and vows to remain, a model of stability during change. Throughout the year CAP maintained its steady supply of water for users in Maricopa, Pinal and Pima counties. It continued to deliver the life-sustaining water necessary to Arizona despite the downturn in the economy and the changes it caused

7 External Stability Stability was the watchword for Central Arizona Project (CAP) throughout Just as rapid, often chaotic, change rent society during 2008, by comparison it was almost a year of tranquility on the Colorado River. It was as if the seven states that share Colorado River water were too busy struggling with the economy and its impacts that they did not have time to squabble over River issues. The Seven Basin States Agreement for Shortage Sharing in 2007, signed in December, formalized rules among the states to cooperate by establishing a series of shortage triggers based on water levels in Lake Mead. It also allows states to conserve and bank the water saved in Lake Mead, calls for Lake Mead and Lake Powell to be operated in tandem and calls for finding new ways to stretch the water supply. The implementation of the agreement, which is in effect through 2026, began in 2008 and there were few disputes among the seven Basin states, which are Arizona, California, Colorado, New Mexico, Nevada, Utah and Wyoming. One major aspect of the agreement is that the states agreed to enhance the water supply as much as possible and throughout 2008 CAP staff worked with other states on a variety of projects. One such effort is the removal of non-native Tamarisk along the Colorado River. Tamarisk, also known as salt-cedar, is a fast growing tree that was originally imported from Eurasia. It grows in closely-packed thickets and consumes significantly more water than native vegetation. Tamarisk The Seven Basin States are Arizona, California, Colorado, New Mexico, Nevada, Utah and Wyoming. It is estimated that between 450,000 and 900,000 acre-feet of water could be saved per year if the Tamarisk were removed. The annual allotment for the entire state of Nevada is 300,000 acre-feet. 10 S T A B I L I T Y D U R I N G C H A N G E 11

8 Studies conducted by the National Oceanic and Atmospheric Administration (NOAA) have shown that winter snowpack can be measurably increased by cloud-seeding winter storms. This increases snow pack which, in turn, increases run-off to rivers and streams. has displaced an estimated 300,000 acres of native vegetation along the Colorado River. It is estimated that between 450,000 and 900,000 acrefeet of water could be saved per year if the Tamarisk were removed. The annual allotment for the entire state of Nevada is 300,000 acre-feet. Another effort is weather modification. Studies conducted by the National Oceanic and Atmospheric Administration (NOAA) have shown that winter snowpack can be measurably increased by cloud-seeding winter storms. This increases snow pack which, in turn, increases run-off to rivers and streams. The Bureau of Reclamation (BOR) estimates the potential increase to the system from cloud seeding to be between 500,000 and 1,000,000 acre-feet in years with near-normal weather patterns, and the cost of this water is less than $10 per acre-foot. Compare that to $1,000 or more per acre-foot for desalinated seawater. One limitation to these augmentation measures, both tamarisk removal and cloud-seeding, is that there is no easy way to quantify the additional water supply generated by the contributions of any specific agency. No one can say for certain, this is your acre-foot, this is mine

9 But these augmentation efforts benefit the system as a whole, and since CAP is the first to lose water in the event of a shortage, any benefit to the system is a benefit to CAP. Another cooperative project that shows promise is the construction of an 8,000 acre-foot mini-lake called the Drop 2 Reservoir, which would be located just off the All American Canal in California. The reservoir is designed store Colorado River water that has been released to meet water orders but that cannot be delivered. It takes about five days for water released from Lake Mead to reach Imperial Dam and about three days from Parker Dam to Imperial. By the time the water arrives downstream, the water users that scheduled it may not be able to use it because of changed weather conditions, high runoff into the river, or a number of other factors. Unless there is a way to store this unneeded water, it flows into Mexico. However, since Mexico did not order the water the flow does not count against the U.S. obligation to deliver 1.5 million acre-feet per year. Since the current drought began in 2000 it is estimated that more than 900,000 acre-feet of non-storable Colorado River water has BOR estimates that roughly 70,000 acre-feet per year can be saved through the Drop 2 project. CAP Board President Susan Bitter Smith and U.S. Interior Secretary Dirk Kempthorne participated in the Drop 2 groundbreaking

10 CAP is currently working with Mexican interests to develop a bi-national desalination project. If a plant were located in the vicinity of Rocky Point in Mexico, a pipeline or aqueduct could move water back up to the Imperial Dam. flowed to Mexico. BOR estimates that roughly 70,000 acre-feet per year can be saved through the Drop 2 project. Another way to acquire more water is through desalination. There are two options for desalination. One is to treat salty, or brackish, groundwater. Studies are currently underway to take inventory of the brackish groundwater resources within Arizona in order to determine how much of that water could be put to use on a sustainable basis. It is possible there could be brackish groundwater desalination plants online within the next five to ten years. The other option for desalination is to treat and import sea water. Discussions with Mexico have already begun. The Arizona Mexico Commission has created a binational institute for water and renewable energy and CAP is a participant in that group. CAP is currently working with Mexican interests to develop a binational desalination project. If a plant were located in the vicinity of Rocky Point in Mexico, a pipeline or aqueduct could move water back up to the Imperial Dam. Imperial Dam is the primary diversion facility just before water crosses into Mexico. With a desalter delivering water to Imperial 16 17

11 The weather was cooperative in The snowpack in the Basin, which supplies the Colorado River when it melts, was 122 percent of normal. Dam, water that would have been released from Lake Mead for delivery out of Imperial Dam could be delivered upstream to users such as CAP. It s difficult to say how much desalination would cost. Consultants estimate that it would be somewhere between $1,200 and $1,800 per acre-foot. Other estimates come in slightly lower. There are also other challenges to be overcome such as delivering power supplies to the facility, dealing with the waste stream and negotiating an international agreement. But planning is underway, it s the only way to make tomorrow a reality and continue to render stability to CAP customers in uncertain times. The weather was cooperative in The snowpack in the Basin, which supplies the Colorado River when it melts, was 122 percent of normal. By the end of water year 2008, the water level had increased 45 feet which meant a net increase of about 2 million acre-feet of water in the river s storage system. CAP delivered 1,548,024 acrefeet of water to its customers in Maricopa, Pima and Pinal counties. CAP has four groups of customers, M&I or municipal and industrial, agricultural users, Indians and recharge. In addition to charging for each acre-foot of water delivered, 2008 CAP Deliveries M&I 733,048 AG 405,650 FEDERAL 192,336 UNDERGROUND STORAGE (RECHARGE) 216,990 1,548,024 acre-feet 18 19

12 CAP also collects an ad valorem property tax in the three county service area. In 2008 the tax was 6 cents per $100 of assessed valuation. Some of the water that does not go to the cities (M&I), agricultural users or Indians goes to the Arizona Water Banking Authority (AWBA), or Water Bank. The Water Bank then recharges or stores the water underground as a hedge against future drought. In times of shortage, that stored water will be pumped back out of the ground and delivered to CAP customers. In 2008, about 216,990 acre-feet of water was stored in underground storage facilities on behalf of the Water Bank. CAP operates the Avra Valley, Lower Santa Cruz and Pima Mine Road recharge projects in Pima County. In Maricopa County, CAP operates the Tonopah Desert, Agua Fria, and Hieroglyphic Mountain recharge projects. The CAP Board authorized creation of CAP s seventh recharge facility; the Superstition Mountains recharge facility near Queen Creek. Construction may begin in It will have a capacity to store about 50,000 acre-feet of water each year. CAP also made deliveries on behalf of the Central Arizona Groundwater Replenishment In 2008, about 216,990 acre-feet of water were stored in underground storage facilities on behalf of the Water Bank

13 District (CAGRD). Established in 1993, the CAGRD is designed to give homeowners (member lands) and water providers (member service areas) who have no direct access to CAP water an assured water supply. Simply put, the CAGRD replaces (replenishes) groundwater pumped to supply its members. In 2008, CAGRD completed enrollment of 45 member land subdivisions for a total of 10,634 homes giving it a total member land enrollment since 1995 of 1,093 subdivisions representing just over 258,400 homes. In 2008, CAGRD also enrolled one new member service area, the Flowing Wells Irrigation District, giving CAGRD a total of 24 member service areas. The CAGRD s replenishment obligation for 2008, which is based on the groundwater pumped by its members in 2007, is 41,321 acre-feet. With relative peace on the River, the overall calm despite the economic turmoil among the Basin states allowed CAP to turn its attention to still other matters in In 2008, CAGRD completed enrollment of 45 member land subdivisions for a total of 10,634 homes giving it a total member land enrollment since 1995 of 1,093 subdivisions representing just over 258,400 homes

14 Internal Internal Stability Stability in determining current and future water supplies and how to work with customers on these issues was one of the most critical other matters confronting Central Arizona Project (CAP) in At the direction of the Central Arizona Water Conservation District (CAWCD) Board, which oversees CAP and its activities, staff began to try to answer the question of where it will find additional or new water supplies. CAP, therefore, developed the ADD Water study. ADD stands for Acquisition, Development and Delivery of new water supplies among stakeholders. Through the course of many meetings, there has been agreement that CAP will be the primary entity to acquire, develop and deliver the new water supply. However, issues remain among the stakeholders. Some are most concerned about cost, others want to be sure the new water qualifies for assured water supply purposes, etc. The first stakeholder meeting took place in May and it is expected the process will be completed in Stability in maintenance was critical for CAP in Eighteen months after quagga mussels were found in an intake at Mark Wilmer Pumping Plant, CAP started to feel an impact in CAP is embarking on an extensive monitoring program to determine rates of quagga mussel settlement within the system

15 2008. Filters at Mark Wilmer on the Colorado River that used to be cleaned annually were changed to weekly cleaning. More time is spent cleaning strainers, doing inspections, and even Preventive Maintenance (PM) schedules have been adjusted to clean the coolers more frequently. CAP is embarking on an extensive monitoring program to determine rates of quagga mussel settlement within the system. This monitoring will help provide a picture of the biological makeup of the canal and how it changes through the system and will provide clues as to why we have settling of mussels in some locations and not in others. CAP returned Unit 6 at Mark Wilmer Pumping Plant back to service in November 2008 after an 18 month outage. The Unit 6 motor failed on start up in April 2007 as a result of a grounding fault in the B phase stator coil. Unit 6 had experienced about 15,000 starts over its service life and was the first of the six, 60,000 horsepower motors to experience such a failure. The root cause of the failure was determined to be a manufacturing flaw in the stator coil insulation. The cost of replacing the stator coil was about $2.7 million. CAP returned Unit 6 at Mark Wilmer Pumping Plant back to service in November 2008 after an 18 month outage

16 Stability in programs for employees also was the watchword for CAP in At the end of 2007 the decision was made to form one safety committee of employees from various positions and departments throughout CAP and dissolve the CAPS Committee and the Employee Safety Committee. The 14-member Safety Vision Support Team is focused on understanding and facilitating improvement of the current safety culture with the goal of achieving CAP s Safety Vision. The CAP Safety Vision is: CAP is a community of empowered people who trust and respect each other and choose to care about each other s safety, health and emotional well being in all aspects of their lives. Another change for CAP employees was the creation of the Third Way. CAP s Workers Compensation (W/C) & Work-Related Illnesses and Injuries Policy has been revised to add a voluntary additional process available to employees. The Third Way works to find a less adversarial and more collaborative approach to returning the employee to the best medical CAP is a community of empowered people who trust and respect each other and choose to care about each other s safety, health and emotional well being in all aspects of their lives

17 health possible through a Review Panel that considers the case. The panel includes the employee, his other supervisor and manager so the process is transparent, and may also include his or her doctor. If the employee does not agree with the Review Panel s decision, he or she will still have time to appeal the Industrial Commission s decision. The 2008 Health & Safety Expo was dubbed getting Back to Basics as it offered all employees the opportunity to manage their health through on-site expos that featured a health risk assessment and vendor fair. Realizing that CAP loses years of institutional knowledge when someone retires, CAP started the Encore program to share the knowledge of retirees with current employees. CAP contracts with crafts and trades retirees to be independent contractors to provide training. The CAP Communications Group continued its program of reaching out to a variety of audiences. A series of educational video programs were produced for a variety of topics, including an introductory video for the Colorado River Water User s Association annual meeting in Las Vegas. CAP s 2008 H2O4U online educational began its third year. H2O4U The 2008 Health & Safety Expo was dubbed getting Back to Basics as it offered all employees the opportunity to manage their health through on-site expos that featured a health risk assessment and vendor fair

18 All students who completed the questions were entered into a drawing for a $1,000 scholarship to the university/technical school of their choice. is an online water education contest for students in Pinal, Pima and Maricopa counties. Based on requests from teachers, CAP also correlated the program to state education standards and some teachers incorporated the program into their lesson plans. All students who completed the questions were entered into a drawing for a $1,000 scholarship to the university/technical school of their choice. Two scholarships are being awarded in each county. Cox Communications and CAP also teamed up in From September 1 through mid- November, 30-second educational messages and dollar-for-dollar matching public service announcements aired across Cox s Phoenix and Tucson markets. The messages and public service announcements, featuring CAP Board President Susan Bitter Smith and Cox executive Ivan Johnson, were aired on networks such as the Discovery Channel, Arts and Entertainment, Home/Garden TV and other news programs

19 2008 Community Investment Central Arizona Project (CAP) s charitable contributions program was developed in 1997 as part of an overall strategy to strengthen business relationships, answer community needs and reinforce lasting commitments to the people and communities that CAP serves. Grants are awarded to organizations located primarily in Maricopa, Pinal and Pima counties that are involved in water education issues and environmental projects which support CAP s mission. The contributions committee is comprised of CAP Board members, management, customers and water resource specialists from throughout CAP s service territory. $50,000 In 2008, CAP s charitable contributions totaled about $50,000. The organizations that were selected for contributions: Arizona State Envirothon, which serves 60 or more students from throughout the state, received funds to purchase and transport the aquatics eco-station which is required for students to conduct the water-related activities as part of the 2009 Arizona Envirothon competition. Children s Museum of Phoenix received money to support the museum s monthly environmental workshops which focus on topics including environmental responsibility, the water cycle, water conservation, water contamination and the history of water in Arizona. Education Enrichment Foundation in Pima County provides mini grants to K-12 teachers with projects focused on water issues including field trips to wetlands, wet/dry caves, recharge projects or water treatment plants and other projects which demonstrate, teach and encourage water conservation. International Sonoran Desert Alliance received funding to support the creation of a sustainable water-harvesting system for the Curley School community garden. Funds would be used to purchase the materials (gutters, drain pipe, holding tanks etc). Junior Achievement of Arizona supports The Green Earth shop in Junior Achievement s BizTown, a year round program which offers 6-week sessions to schools. The purpose of the Green Earth Shop is to educate youth on the importance of water conservation, sustainability and energy efficiency. Students receive water conservation handouts as part of the program. Tucson Audubon Society received money to support the Tucson Audubon Society s Riparian Family Institute, a program in which emphasizes the importance of responsible stewardship of watersheds (particularly the San Pedro watershed). UA Foundation: College of Education s Cooper Center for Environmental Learning supports programs within the Cooper Center for Environmental Learning including creation of a rainwater harvesting system on the Center s grounds, transportation costs for middle school classes to experience field trips to learn more about water resources and to support teacher learning by providing substitute teacher pay while teachers are attending workshops at the Cooper Center. UA Maricopa Agricultural Center received money to fund operational expenses and water conservation handouts which support the Ag-Venture program. K-6 students see and experience how to conserve water on a farm and in everyday life. The Community Food Bank in Pima County was able to purchase two cisterns as part of a water harvesting system to recover 10,000 gallons of roof runoff for demonstration gardens. The East Maricopa Resource Management Education Center received funds to continue providing interactive water education to students and teachers. The Tucson Unified School District s Regional Science Resource Center got money to support water education in the district. The UA Water Resources Research Center provides teachers with workshops, lesson plans and classroom materials which help them engage students in learning about water resources

20 central arizona water conservation district Fi n a n c i a l H i g h l i g h t s for year ended december 31, 2008 & 2007 The following discussion will guide the readers through the District s financial performance and how it relates to CAWCD s stewardship of Central Arizona s Colorado River water entitlement and its vision to enhance the quality of life and ensure sustainable growth for current and future residents of Arizona. The District s activities are accounted for using the accrual method and incorporating the requirements of GASB Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments. Under enterprise fund accounting, the District is a single accounting entity for financial reporting purposes and is similar to private business enterprise. However, within this single accounting entity, the District has identified a number of financial activities that are useful to track separately. We refer to these activities as funds and accounts. FINANCIAL HIGHLIGHTS The District s financial results are largely impacted by rainfall and snowfall levels which affects customer water delivery needs. Other factors impacting the District s financial position include fluctuations in property valuations and power usage. The following are some of the key highlights for the year ended Assets of the District exceeded liabilities (net assets) at the end of 2008 by $398.9 million, an increase of $20.3 million over The District's unrestricted cash reserve balance at the end of 2008 was $46.1 million compared to $104.6 million at the end of The unrestricted reserves are used to meet CAWCD's ongoing obligations to customers and creditors. Total revenues decreased $71.4 million in 2008 from Total expenses increased $3.8 million in 2008 from central arizona water conservation district Fi n a n c i a l H i g h l i g h t s for year ended december 31, 2008 and 2007 Capital expenditures for 2008 were $19.8 million, a slight increase over the $19.3 million spent in 2007 (excluding accruals). In 2008, CAWCD entered into a contract to fund a portion of the Lower Colorado River (LCR) Drop 2 Reservoir. The LCR Drop 2 Reservoir will, when completed, store ordered but unused Colorado River water that would otherwise flow to Mexico, and improve operational control on the Lower Colorado River. CAWCD contributed $28.7 million in May In 2007, the District redeemed Series B Bonds for $14.5 million including principal and interest. Also, Series A 1990 Bonds were paid off according to the original schedule in November As a result, interest expense decreased by $1.7 million in CONDENSED FINANCIAL INFORMATION The following financial information and narrative will provide the reader with an overview of the District s financial activities, including comparisons, for the years ending December 31, 2008 and December 31, This discussion will highlight areas within the financial statements that support and advance CAWCD s operations and business purpose to the residents of the State of Arizona. Assets Current Assets: Current assets include cash, receivables, inventory and other current assets. In 2008, current assets decreased by $19.9 million. The majority of the decrease came from CAWCD s contribution of $28.7 million in May 2008 to fund the LCR Drop 2 Reservoir which lowered cash and increased noncurrent assets. Additional decreases were related to the repayment of the federal obligation and a $1.9 million write off attributed to the Lehman Brothers bankruptcy. These decreases were offset by the $20.3 million increase in net assets (revenues less expenses) and a $25.0 million increase in funds held on behalf of the Arizona Water Banking Authority (AWBA). (dollars in millions) change Current Assets Cash and cash equivalents $ $ $ (19.5) Other current assets (0.4) Non Current Assets Funds held by /advanced to federal gov t (14.7) Investments and restricted assets Capital Assets, net Permanent service right 1, ,369.7 (30.7) Other assets Total assets $ 1,973.0 $ 1,990.3 $ (17.3) Noncurrent Assets: Included in the noncurrent assets are funds held by/advanced to the federal government, investments and restricted assets, and capital assets. The largest capital asset is the permanent service right (PSR) and for this reason is broken out in the chart below. The PSR represents the District s right to operate and maintain the CAP system and collect revenues from operations, for which the District has incurred a repayment obligation to the United States (see Note 4 and 5 for detailed information). Capital assets are discussed in more detail in the Capital Asset and Long-Term Debt Activity section of the MD&A. In 2008, the change in the restricted assets of $12.2 million is mainly related to power revenues and related interest being deposited into major repair and replacement reserves instead of being used for bond repayment obligations that have been reduced and was offset by negative fair market adjustments on funds held by the Arizona State Treasurer s office. Funds held by/advanced to federal government decreased by $14.7 mainly due to CAWCD s decision not to sell SO2 credits owing to the temporary decline in market value

21 central arizona water conservation district Fi n a n c i a l H i g h l i g h t s for year ended december 31, 2008 & 2007 central arizona water conservation district Fi n a n c i a l H i g h l i g h t s for year ended december 31, 2008 & 2007 Total Liabilities Current Liabilities: Current liabilities include payables, accrued interest, and current principal obligations. Overall, current liabilities decreased by $2.5 million in Accounts payable was lower by $3.8 million as a result of the lack of interstate water deliveries and a lower payable to the Water Protection Fund and lower over-threshold energy purchases in December (December purchases were made in November 2008 due to rate favorability). These decreases were offset by an increase in CAGRD s replenishment obligation. Deferred revenue increased $1.5 million primarily due to higher rates for water. Long-Term Liabilities: The largest component of the District s long-term liabilities is the federal repayment obligation. The decrease in the long-term federal repayment obligation was $25.2 million in In addition, contract revenue bonds decreased to $13.7 million. In 2007, as part of the AWSA, the District has incurred a liability of $78.1 million for the non-indian agriculture water rights to 87,269 acre-feet, which remains unchanged. (dollars in millions) change Current Liablilities Accounts payable $ 30.9 $ 34.7 $ (3.8) Water operations and capital charges deferred revenue Other current liabilities (0.2) Noncurrent Liablilities Repayment obligation 1, ,371.5 (25.2) Revenue bonds (14.0) Non-Indian Ag debt other noncurrent liabilities Total liabilities $ 1,574.1 $ 1,611.7 $ (37.6) Total Net Assets Net assets, the difference between assets and liabilities, increased $20.3 million (5.4%) from Investment in capital assets, net of related debt, increased $16.7 million in 2008 reflecting that the District is paying off the debt faster than the associated amortization and depreciation on these assets. The decrease in the debt associated with the contract revenue bonds accounts is $14.0 million in 2008 due to the lower outstanding bonds. Property and equipment (net) increased $9.1 million. Offsetting these increases is a decrease in the net investment in the PSR. Restricted net assets increased $13.0 million in 2008 primarily due to the Major Repair/Replace reserve which increased $12.3 million due to power revenue (as indicated in noncurrent assets). Unrestricted net assets decreased $9.4 million as a result of the LCR Drop 2 Reservoir payment from the District s Working Capital Reserve offset by increased back capital charge revenue from the five-year payment option of the AWSA agreement finalized in The change in restricted and unrestricted net assets will fluctuate depending on operational needs and any board actions. (dollars in millions) change Assets Capital Assets $ 1,463.9 $ 1,456.8 $ 7.1 Other Assets (24.4) Total assets 1, ,990.3 (17.3) Liabilities Current liabilities (2.5) Noncurrent liabilities 1, ,484.9 (35.1) Total liabilities 1, ,611.7 (37.6) Net Assets Invested in capital assets, net of related debt Restricted, net Unrestricted, net (9.4) Total net assets Total liabilities and net assets $ 1,973.0 $ 1,990.3 $ (17.3) Total Revenues Total revenues include operating revenues, such as water delivery operation and maintenance (O&M) charges, water service capital charges, power & Basin Development Fund (BDF) revenues, and nonoperating revenues, such as property taxes and interest earnings. Total revenues for 2008 decreased by $71.4 million (22.1%) compared to One significant item driving the variance is associated with the 2007 reallocation of 65,647 acre-feet of M&I water resulting from the AWSA. One time charges were recorded in 2007 of $31.5 million for back capital charges and associated interest income of $12.1 million. Due to the high level of water orders and 148,417 acre-feet less water available for delivery in 2008, there were not any Interstate water deliveries resulting in a revenue decrease of $19.0 million. This revenue decrease was offset by increases of $4.2 million in Federal deliveries and $3.6 million in Municipal and Industrial (M&I) deliveries. Power and BDF revenues were lower primarily due to the District s decision to not sell SO2 credits in 2008 due to the significant decline in their market price which decreased revenue by $10.7 million and increases in the capital costs at the Navajo Generating Station of $3.9 million

22 central arizona water conservation district Fi n a n c i a l H i g h l i g h t s for year ended december 31, 2008 & 2007 central arizona water conservation district Fi n a n c i a l H i g h l i g h t s for year ended december 31, 2008 & 2007 Lower interest rates and decreases in the fair market value of investments held at the Arizona State Treasurer s office resulted in a $9.0 million decrease. Property taxes collected increased $8.0 million in 2008 due to previously higher assessed valuations from the temporary housing bubble. (dollars in millions) change Operating revenues Water O&M charges $ 97.7 $ $ (11.1) Water service capital charges (32.9) Power and other BDF revenues (14.5) Reimbursements & other Total operating revenues $ $ $ (58.3) Nonoperating revenues Property taxes $ 65.0 $ 57.0 $ 8.0 Interest income & other (21.1) Total nonoperating revenues $ 75.7 $ 88.8 $ (13.1) Total revenues $ $ $ (71.4) Water deliveries were 1,557,489 acre-feet in 2008 which were 148,417 acre-feet less than The increased 2007 deliveries were accomplished through a drawdown of Lake Pleasant. Total Expenses Total expenses include operating expenses, which include employee and professional services expenses, pumping power and power transmission, depreciation as well as most other expenses, and nonoperating expenses, which are primarily interest and other financial expenses. Rates are set in a manner that will recover an appropriate share of the District s expected operating expenses from customers. Since rates are set in advance, actual expenses may differ from the estimates used to calculate rates, and reserves may consequently fluctuate. Total expenses for 2008 increased by $3.8 million (1.7%) compared to Salaries and related costs increased $2.4 million. Pumping power decreased by $2.4 million due to lower over-threshold energy costs resulting from a decrease in the rate from $56.18/mwh in 2007 to $51.86/mwh in Other expenses increased $5.5 million driven mainly by the following key increases: $0.8 million in depreciation, $1.5 million for raising the canal lining by 2 ½ feet, and $4.3 million increase in accretion expense due to the updated Navajo Decommissioning Study. These expenses were offset by a $1.5 million decrease for CAGRD s 2007 purchase of an M&I allocation that did not occur in Nonoperating expenses decreased by $1.7 million corresponding with lower interest expense due to the reduction of the federal repayment obligation debt and revenue bonds. (dollars in millions) change Operating expenses Salaries & related costs $ 46.4 $ 44.0 $ 2.4 Pumping power (2.4) Amortization of PSR Other Total operating expenses $ $ $ 5.5 Nonoperating expenses (1.7) Total expenses $ $ $

23 central arizona water conservation district Fi n a n c i a l H i g h l i g h t s for year ended december 31, 2008 & 2007 central arizona water conservation district Fi n a n c i a l H i g h l i g h t s for year ended december 31, 2008 & 2007 Change In Net Assets and Ending Net Assets Net assets increased $20.3 million in (dollars in millions) change Total operating revenues $ $ $ (58.3) Total operating expenses (195.7) (190.2) (5.5) Operating income (loss) (19.6) 44.2 (63.8) Nonoperating revenues (expenses) (11.4) Change in net assets $ 20.3 $ 95.5 $ (75.2) Beginning net assets Ending net assets $ $ $ 20.3 Long-Term Debt: The District s long-term debt decreased $39.2 million in 2008 from Long-term debt is discussed in the previous Total Liabilities section. Schedule of Long-Term Debt (dollars in millions) change Repayment obligation $ 1,346.3 $ 1,371.5 $ (25.2) Revenue bonds (14.0) Total long-term debt $ 1,360.0 $ 1,399.2 $ (39.2) CAPITAL ASSET AND LONG-TERM DEBT ACTIVITY Capital Assets: The District s net investment in capital assets increased $7.1 million and remained at $1.46 billion for The largest component of the District s capital assets is the permanent service right (PSR), net of accumulated amortization. The PSR (net) has decreased from $1.37 billion in 2007 to $1.34 billion in 2008 per the amortization schedule, which is approximately $30 million per year. The LCR Drop 2 Reservoir Project payment of $28.7 million was made in May A net of $18.7 million in projects were transferred from construction in progress to structures and improvements. Schedule of Capital Assets (Net of Depreciation and Amortization) Contacting The District s Financial Management The information contained in the Financial Highlights is intended to provide a general overview of the District s finances. If you have questions about the report or need additional financial information, contact: Theodore Cooke Assistant General Manager of Finance and Information Technologies tcooke@cap-az.com Douglas Dunlap (dollars in millions) change Permanent service right $ 1,339.0 $ 1,369.7 $ (30.7) Drop 2 Reservior Other capital assets Land Construction in progress (18.7) Capital equipment Structures and improvements Total other capital assets Total capital assets $ 1,463.9 $ 1,456.8 $

24 THE CAWCD BOARD Central Arizona Water Conservation District (CAWCD) THE 2009 SENIOR MANAGEMENT TEAM Central Arizona Project (CAP) A B C D E F G H I J K L M N O CAP s Board of Directors MARICOPA COUNTY A Susan Bitter Smith TERM ENDING 2010 B Daniel J. Donahoe TERM ENDING 2010 C Timothy R. Bray TERM ENDING 2010 D Paul Hendricks TERM ENDING 2010 E Mark Lewis TERM ENDING 2010 F Pam Pickard TERM ENDING 2012 G Jean McGrath TERM ENDING 2012 H Janie Thom TERM ENDING 2012 I Lisa Atkins TERM ENDING 2012 J Gayle Burns TERM ENDING 2012 PIMA COUNTY K Mike Boyd TERM ENDING 2008 L Diana Kai TERM ENDING 2008 M David Modeer TERM ENDING 2008 N Carol Zimmerman TERM ENDING 2008 PINAL COUNTY O Jim Hartdegen TERM ENDING 2008 CAWCD Board members accept a huge responsibility on behalf of their constituents, the citizens of Maricopa, Pima and Pinal counties. They are representing more than five million people, roughly 80 percent of the state s population, and all of Arizona s largest cities including Phoenix, Tucson, Mesa, Glendale, Peoria and Scottsdale. A B C D E F G CAP COMMUNICATIONS GROUP Editor-in-Chief Kathryn Schmitt Editor Robert Barrett Contributing Writers Crystal Thompson Vicky Campo Cathy Carlat Kelli Ramirez Photography Philip Fortnam Design & Illustration Squeeze, Inc. H A David V. Modeer GENERAL MANAGER B Donna Micetic EXECUTIVE ASSOCIATE C Tom Delgado ASSISTANT GENERAL MANAGER, EMPLOYEE SERVICES D John Newman ASSISTANT GENERAL MANAGER, MAINTENANCE E Larry Dozier DEPUTY GENERAL MANAGER, OPERATIONS, PLANNING & ENGINEERING F Douglas Miller GENERAL COUNSEL G Kathryn Schmitt DIRECTOR, COMMUNICATIONS, PUBLIC AFFAIRS & GOVERNMENTAL RELATIONS H Ted Cooke ASSISTANT GENERAL MANAGER, FINANCE & INFORMATION TECHNOLOGY The decisions Board members make have longterm consequences related to the quantity, price and distribution of the approximately 1.5 million acre-feet of Colorado River water Central Arizona Project annually delivers. They arrive at their decisions by building trust, developing relationships and considering all the options, all the time. The 15-member Board serves staggered sixyear terms without pay. Every two years, as part of the general election ballot, the public elects one-third of the 15-member CAWCD Board. Candidates are drawn from CAP s three-county service area: Maricopa, Pinal and Pima counties. The candidates must be residents of the county they wish to represent. The composition of the Board is based on population, so 10 are from Maricopa County, 4 from Pima County and 1 from Pinal County. The Board generally meets monthly at CAP headquarters in Phoenix. The leaders on the CAWCD Board receive, review and comprehend extraordinary quantities of information in order to make informed and educated decisions related to water policy and practice. CAWCD Board members have consistently proven themselves as prudent and responsible governors of the system. In a world where ego sometimes dictates decision-making, the Central Arizona Project is fortified by a Board of fair and responsible leaders who are intelligently planning for this state s water future well into the 21st century

25 C E N T R A L A R I Z O N A P R O J E C T P.O. B O X P H O E N I X, A Z w w w. c a p - a z. c o m