BAYTOWN AREA WATER AUTHORITY AGENDA

Transcription

1 BAYTOWN AREA WATER AUTHORITY NOTICE OF MEETING BAYTOWN AREA WATER AUTHORITY REGULAR MEETING WEDNESDAY, JANUARY 20, :00 A.M. CITY COUNCIL CHAMBER BAYTOWN CITY HALL 2401 MARKET STREET BAYTOWN, TEXAS AGENDA CALL TO ORDER AND ANNOUNCEMENT OF QUORUM 1. MINUTES a. Consider approving the minutes of the Baytown Area Water Authority Special Board Meeting held on December 9, PROPOSED RESOLUTIONS a. Consider a resolution awarding the Annual Sodium Hydroxide Contract to Univar USA Inc. b. Consider a resolution awarding the Annual Zinc Polyphosphate Contract to Shannon Chemical Corporation. c. Consider a resolution awarding the Annual Liquid Ferric Chloride Contract to PVS Technologies, Inc. d. Consider a resolution awarding the Annual Liquid Chlorine Contract to Brenntag Southwest, Inc.

2

3 BAYTOWN AREA WATER AUTHORITY 1. a. MEETING Meeting Date: 01/20/2016 Subject: Baytown Area Water Authority Special Board Meeting held on December 9, Prepared For: Leticia Brysch, City Clerk's Office Prepared By: Leticia Brysch, City Clerk's Office Information ITEM Consider approving the minutes of the Baytown Area Water Authority Special Board Meeting held on December 9, PREFACE Consider approving the minutes of the Baytown Area Water Authority Special Board Meeting held on December 9, RECOMMENDATION Staff recommends approval BAWA SP Minutes Attachments

4 D R A F T MINUTES OF THE SPECIAL MEETING OF THE BOARD OF DIRECTORS OF THE BAYTOWN AREA WATER AUTHORITY December 09, 2015 The Board of Directors of the Baytown Area Water Authority (BAWA) met in a Special Meeting on Wednesday, December 09, 2015, at 9:00 A.M., in the Baytown Conference Room of the Baytown City Hall, 2401 Market Street, Baytown, Texas with the following in attendance: Brenda Bradley Smith Mike Wilson Wayne Baldwin Frank McKay Rick Davis Ignacio Ramirez, Sr. Leticia Brysch President Vice President Secretary Director General Manager General Counsel Assistant Secretary President Bradley Smith convened the December 09, 2015, Baytown Area Water Authority (BAWA) Board Special Meeting with a quorum present at 9:00 A.M., all members were present with the exception of Director Brandon Benoit who was absent. 1. MINUTES a. Consider approving the minutes of the Baytown Area Water Authority Special Meeting held on October 26, A motion was made by Vice President Mike Wilson and seconded by Director Frank McKay III approving the October 26, 2015, BAWA Board Special Meeting minutes. The vote was as follows: Ayes: Secretary Wayne Baldwin, President Brenda Bradley Smith, Director Frank McKay III, Vice President Mike Wilson Nays: None Other: Director Brandon Benoit (Absent) Approved 2. PROPOSED RESOLUTIONS a. Consider a resolution awarding a Construction Contract to Triple B Services LLP, for the Baytown Area Water Authority 6 MGD Surface Water Treatment Plant - Clearing and Grubbing Project.

5 BAWA Board Special Meeting Minutes December 09, 2015 Page 2 of 4 General Manager Davis presented the agenda item and stated that Resolution No awards a construction contract to Triple B Services LLP, in the amount of $430,531.55, for the clearing and grubbing of approximately 38 acres for the Baytown Area Water Authority (BAWA) 6 MGD Surface Water Treatment Plant - Clearing and Grubbing Project. Additionally, he stated that there were three (3) bids received and the agreement will be considered at the December 10, 2015, City Council Meeting. Director McKay inquired of the amount budgeted for this work. Director of Engineering, Mr. Jose Pastrana stated that the original budget amount was between $200,000 and $300,000. A motion was made by Secretary Wayne Baldwin and seconded by Vice President Mike Wilson approving Resolution No The vote was as follows: Ayes: Secretary Wayne Baldwin, President Brenda Bradley Smith, Director Frank McKay III, Vice President Mike Wilson Nays: None Other: Director Brandon Benoit (Absent) Approved RESOLUTION NO A RESOLUTION OF THE BOARD OF DIRECTORS OF THE BAYTOWN AREA WATER AUTHORITY AWARDING BAYTOWN AREA WATER AUTHORITY 6 MGD SURFACE WATER TREATMENT PLANT - CLEARING AND GRUBBING PROJECT TO TRIPLE B SERVICES LLP, IN AN AMOUNT OF FOUR HUNDRED THIRTY THOUSAND FIVE HUNDRED THIRTY-ONE AND 55/100 DOLLARS ($430,531.55); MAKING OTHER PROVISIONS RELATED THERETO; AND PROVIDING FOR THE EFFECTIVE DATE THEREOF. b. Consider a resolution authorizing a Professional Services Agreement with KIT Professionals, Inc., for the BAWA Sedimentation Basins 1-3 Re-rating Evaluation Project. Mr. Pastrana presented the agenda item and stated that years ago the plant's treatment process was done through sedimentation basins and was not rated accordingly with TCEQ; therefore, the sedimentation basins must be re-rated in which staff recommends KIT Professionals, Inc. ("KIT"), to provide those services. A motion was made by Director Frank McKay III and seconded by Secretary Wayne Baldwin approving Resolution No The vote was as follows: Ayes: Secretary Wayne Baldwin, President Brenda Bradley Smith, Director Frank McKay III, Vice President Mike Wilson

6 BAWA Board Special Meeting Minutes December 09, 2015 Page 3 of 4 Nays: None Other: Director Brandon Benoit (Absent) Approved RESOLUTION NO A RESOLUTION OF THE BOARD OF DIRECTORS OF THE BAYTOWN AREA WATER AUTHORITY AUTHORIZING THE PROFESSIONAL SERVICE AGREEMENT WITH KIT PROFESSIONALS, INC., FOR THE BAYTOWN AREA WATER AUTHORITY SEDIMENTATION BASINS 1-3 RE-RATING EVALUATION PROJECT; AUTHORIZING PAYMENT IN AN AMOUNT NOT TO EXCEED THIRTY THOUSAND AND NO/100 DOLLARS ($30,000.00); MAKING OTHER PROVISIONS RELATED THERETO; AND PROVIDING FOR THE EFFECTIVE DATE THEREOF. c. Consider a resolution authorizing the Third Contract Amendment to the Untreated Water Supply Contract with the City of Houston to increase contract quantities and to add an additional point of delivery. General Manager Davis presented the agenda item and stated that staff recommended moving forward with the acquisition of 6MGD from the City of Houston to avoid further delaying the development of the new plant. He also stated that staff will continue negotiations with the City of Houston in order to obtain additional Contract Quantities for the new plant. A motion was made by Vice President Mike Wilson and seconded by Secretary Wayne Baldwin approving Resolution No The vote was as follows: Ayes: Secretary Wayne Baldwin, President Brenda Bradley Smith, Director Frank McKay III, Vice President Mike Wilson Nays: None Other: Director Brandon Benoit (Absent) Approved RESOLUTION NO A RESOLUTION OF THE BOARD OF DIRECTORS OF THE BAYTOWN AREA WATER AUTHORITY AUTHORIZING THE THIRD CONTRACT AMENDMENT TO THE UNTREATED WATER SUPPLY CONTRACT WITH THE CITY OF HOUSTON TO INCREASE CONTRACT QUANTITY AND TO ADD AN ADDITIONAL POINT OF DELIVERY; AND PROVIDING FOR THE EFFECTIVE DATE THEREOF.

7 BAWA Board Special Meeting Minutes December 09, 2015 Page 4 of 4 3. REPORTS a. Receive an update regarding the Baytown Area Water Authority (BAWA) East Plant Project. Mr. Pastrana presented the agenda item and stated that the BAWA East project was being held up because of the delineation report for the clearing and grubbing along with the unresolved issue with the negotiations for the water supply agreement with the City of Houston. He stated that since those two issues have been resolved the project should move forward and is projected to be done by the end of year MANAGER'S REPORT a. Reminder that the next Baytown Area Water Authority meeting is scheduled for Wednesday, January 20, 2016, at 9:00 A.M. in the City Council Chamber, 2401 Market Street, Baytown, Texas General Manager Davis presented the agenda item and stated that reminder that the next Baytown Area Water Authority meeting is scheduled for Wednesday, January 20, 2016, at 9:00 A.M. in the City Council Chamber, 2401 Market Street, Baytown, Texas ADJOURN With there being no further business to discuss, President Bradley Smith adjourned the December 09, 2015, Baytown Area Water Authority (BAWA) Board Special Meeting at 9:112 A.M. Leticia Brysch, Assistant Secretary City of Baytown

8 BAYTOWN AREA WATER AUTHORITY 2. a. MEETING Meeting Date: 01/20/2016 Subject: Consider a resolution awarding the Annual Liquid Sodium Hydroxide Contract to Univar Prepared For: Rick Davis, City Management Prepared By: Zachary Lillie, Baytown Area Water Authority Information ITEM Consider a resolution awarding the Annual Sodium Hydroxide Contract to Univar USA Inc. PREFACE This proposed resolution awards the Annual Sodium Hydroxide Contract to Univar USA Inc., in the amount of $138, (407,000 $ per pound at 50% and 290,000 $ per pound at 25%). The bids were opened Tuesday, January 12, at 9:00 a.m. with Univar USA Inc., having the lowest bid. The previous contract dated January 2015, was awarded to Brenntag Southwest Inc., for $164, (407,000 $0.222 per pound at 50% and 290,000 $ per pound at 25%). This product is used to control ph. RECOMMENDATION Staff recommends approval. Fiscal Impact Fiscal Year: FY16 & 17 Acct Code: Source of Funds (Operating/Capital/Bonds): Operating Funds Budgeted Y/N: Y Amount Needed: $138, Fiscal Impact (Additional Information): Attachments Caustic Bid Results Resolution - Annual Liquid Sodium Hydroxide Contract

9

10 A RESOLUTION OF THE BOARD OF DIRECTORS OF THE BAYTOWN AREA WATER AUTHORITY ACCEPTING THE BID OF UNIVAR USA INC., FOR THE ANNUAL SODIUM HYDROXIDE CONTRACT AND AUTHORIZING PAYMENT BY THE BAYTOWN AREA WATER AUTHORITY, IN THE AMOUNT OF ONE HUNDRED THIRTY-EIGHT THOUSAND FIVE HUNDRED NINETY-TWO AND DOLLARS ($138,592.80); MAKING OTHER PROVISIONS RELATED THERETO; AND PROVIDING FOR THE EFFECTIVE DATE THEREOF. ***************************************************************************************** WHEREAS, the Board of Directors of the Baytown Area Water Authority advertised for bids for the Annual Sodium Hydroxide Contract to be received on January 12, 2016; and WHEREAS, notice to bidders as to the time and place, when and where the contract would be let was published in accordance with law; and WHEREAS, all bids were opened and publicly read at the Baytown Area Water Authority s Fritz Lanham Water Treatment Facility at 9:00 a.m., on Tuesday, January 12, 2016, as per published notice to bidders; NOW THEREFORE BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE BAYTOWN AREA WATER AUTHORITY: Section 1: That the Board of Directors of the Baytown Area Water Authority hereby accepts the bid of Univar USA INC., for the Annual Sodium Hydroxide Contract for the sum of ONE HUNDRED THIRTY- EIGHT THOUSAND FIVE HUNDRED NINETY-TWO AND DOLLARS ($138,592.80). Section 2: That the General Manager is hereby granted general authority to approve any change order involving a decrease or an increase in costs of FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00) or less, provided that the original contract price may not be increased by more than twenty-five percent (25%) or decreased by more than twenty-five percent (25%) without the consent of the contractor to such decrease. Section 3: This resolution shall take effect immediately from and after its passage by the Board of Directors of the Baytown Area Water Authority. INTRODUCED, READ and PASSED, by the affirmative vote of the Board of Directors of the Baytown Area Water Authority this the 20 st day of January, ATTEST: BRENDA BRADLEY SMITH President LETICIA BRYSCH, Assistant Secretary APPROVED AS TO FORM: IGNACIO RAMIREZ, SR., General Counsel R:\Karen\Files\BAWA\Resolution\2016\January\AwardAnnualSodiumHydroxideContract.doc

11 BAYTOWN AREA WATER AUTHORITY 2. b. MEETING Meeting Date: 01/20/2016 Subject: Consider a resolution awarding the Annual Zinc Polyphosphate Contract to Shannon Chemical Corporation. Prepared For: Rick Davis, City Management Prepared By: Zachary Lillie, Baytown Area Water Authority Information ITEM Consider a resolution awarding the Annual Zinc Polyphosphate Contract to Shannon Chemical Corporation. PREFACE This proposed resolution awards the Annual Zinc Polyphosphate Contract to Shannon Chemical Corporation in the amount of $46, (100,000 $0.464 per pound). The bids were opened Tuesday, January 12, at 9:00 a.m. with Shannon Chemical Corporation having the lowest bid. The previous contract dated January 2015, was awarded to Sterling Water Technologies LLC, for $48, (100,000 $ per pound). This product is used for corrosion control within the system. RECOMMENDATION Staff recommends approval. Fiscal Impact Fiscal Year: FY16 & 17 Acct Code: Source of Funds (Operating/Capital/Bonds): Operating Funds Budgeted Y/N: Y Amount Needed: $46,400. Fiscal Impact (Additional Information): Attachments Zinc Bid Results 2016 Resolution - Annual Zinc Polyphosphate Contract

12

13 A RESOLUTION OF THE BOARD OF DIRECTORS OF THE BAYTOWN AREA WATER AUTHORITY ACCEPTING THE BID OF SHANNON CHEMICAL CORPORATION FOR THE ANNUAL ZINC POLYPHOSPHATE CONTRACT AND AUTHORIZING PAYMENT BY THE BAYTOWN AREA WATER AUTHORITY, IN THE AMOUNT OF FORTY-SIX THOUSAND FOUR HUNDRED AND NO/100 DOLLARS ($46,400.00); MAKING OTHER PROVISIONS RELATED THERETO; AND PROVIDING FOR THE EFFECTIVE DATE THEREOF. ***************************************************************************************** WHEREAS, the Board of Directors of the Baytown Area Water Authority advertised for bids for the Annual Zinc Polyphosphate Contract to be received on January 12, 2016; and WHEREAS, notice to bidders as to the time and place, when and where the contract would be let was published in accordance with law; and WHEREAS, all bids were opened and publicly read at the Baytown Area Water Authority s Fritz Lanham Water Treatment Facility at 9:00 a.m., on Tuesday, January 12, 2016, as per published notice to bidders; NOW THEREFORE BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE BAYTOWN AREA WATER AUTHORITY: Section 1: That the Board of Directors of the Baytown Area Water Authority hereby accepts the bid of Shannon Chemical Corporation for the Annual Zinc Polyphosphate Contract for the sum of FORTY-SIX THOUSAND FOUR HUNDRED AND NO/100 DOLLARS ($46,400.00). Section 2: That the General Manager is hereby granted general authority to approve any change order involving a decrease or an increase in costs of FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00) or less, provided that the original contract price may not be increased by more than twenty-five percent (25%) or decreased by more than twenty-five percent (25%) without the consent of the contractor to such decrease. Section 3: This resolution shall take effect immediately from and after its passage by the Board of Directors of the Baytown Area Water Authority. INTRODUCED, READ and PASSED, by the affirmative vote of the Board of Directors of the Baytown Area Water Authority this the 20 th day of January, ATTEST: BRENDA BRADLEY SMITH, President LETICIA BRYSCH, Assistant Secretary APPROVED AS TO FORM: IGNACIO RAMIREZ, SR., General Counsel R:\Karen\Files\BAWA\Resolution\2016\January\AwardAnnualZincPolyphosphateContract.doc

14 BAYTOWN AREA WATER AUTHORITY 2. c. MEETING Meeting Date: 01/20/2016 Subject: Consider a resolution awarding the Annual Liquid Ferric Chloride Contract to PVS Technologies. Prepared For: Rick Davis, City Management Prepared By: Zachary Lillie, Baytown Area Water Authority Information ITEM Consider a resolution awarding the Annual Liquid Ferric Chloride Contract to PVS Technologies, Inc. PREFACE This proposed resolution awards the Annual Liquid Ferric Chloride Contract to PVS Technologies, Inc., in the amount of $121, The bids were opened Tuesday, January 12th, at 9:00 a.m. with PVS Technologies, Inc., having the lowest bid at $121,000. (500,000 $0.242 per pound). The previous contract dated January 2015, was awarded to Kemira Water Solutions, Inc., for $122, (500,000 $0.245 per pound). This product is used in the coagulation process. RECOMMENDATION Staff recommends approval. Fiscal Impact Fiscal Year: FY16 & 17 Acct Code: Source of Funds (Operating/Capital/Bonds): Operating Funds Budgeted Y/N: Y Amount Needed: $121,000. Fiscal Impact (Additional Information): Attachments Ferric Bid Results 2016 Resolution - Annual Liquid Ferric Chloride Contract

15

16 A RESOLUTION OF THE BOARD OF DIRECTORS OF THE BAYTOWN AREA WATER AUTHORITY ACCEPTING THE BID OF PVS TECHNOLOGIES, INC., FOR THE ANNUAL LIQUID FERRIC CHLORIDE CONTRACT AND AUTHORIZING PAYMENT BY THE BAYTOWN AREA WATER AUTHORITY, IN THE AMOUNT OF ONE HUNDRED TWENTY-ONE THOUSAND AND NO/100 DOLLARS ($121,000.00); MAKING OTHER PROVISIONS RELATED THERETO; AND PROVIDING FOR THE EFFECTIVE DATE THEREOF. ***************************************************************************************** WHEREAS, the Board of Directors of the Baytown Area Water Authority advertised for bids for the Annual Liquid Ferric Chloride Contract to be received on January 12, 2016; and WHEREAS, notice to bidders as to the time and place, when and where the contract would be let was published in accordance with law; and WHEREAS, all bids were opened and publicly read at the Baytown Area Water Authority s Fritz Lanham Water Treatment Facility at 9:00 a.m., on Tuesday, January 12, 2016, as per published notice to bidders; NOW THEREFORE BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE BAYTOWN AREA WATER AUTHORITY: Section 1: That the Board of Directors of the Baytown Area Water Authority hereby accepts the bid of PVS Technologies, Inc., for the Annual Liquid Ferric Chloride Contract for the sum of ONE HUNDRED TWENTY-ONE THOUSAND AND NO/100 DOLLARS ($121,000.00). Section 2: That the General Manager is hereby granted general authority to approve any change order involving a decrease or an increase in costs of FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00) or less, provided that the original contract price may not be increased by more than twenty-five percent (25%) or decreased by more than twenty-five percent (25%) without the consent of the contractor to such decrease. Section 3: This resolution shall take effect immediately from and after its passage by the Board of Directors of the Baytown Area Water Authority. INTRODUCED, READ and PASSED, by the affirmative vote of the Board of Directors of the Baytown Area Water Authority this the 20 th day of January, ATTEST: BRENDA BRADLEY SMITH, President LETICIA BRYSCH, Assistant Secretary APPROVED AS TO FORM: IGNACIO RAMIREZ, SR., General Counsel R:\Karen\Files\BAWA\Resolution\2016\January\AwardAnnualLiquidFerricChlorideContract.doc

17 BAYTOWN AREA WATER AUTHORITY 2. d. MEETING Meeting Date: 01/20/2016 Subject: Consider a resolution awarding the Annual Liquid Chlorine Contract to Brenntag Southwest, Inc. Prepared For: Rick Davis, City Management Prepared By: Zachary Lillie, Baytown Area Water Authority Information ITEM Consider a resolution awarding the Annual Liquid Chlorine Contract to Brenntag Southwest, Inc. PREFACE This proposed resolution awards the Annual Liquid Chlorine Contract to Brenntag Southwest, Inc., in the amount of $76, The bids were opened Tuesday, January 12, at 09:00 a.m. with Brenntag Southwest Inc., having the lowest bid at $76, (133 tons/per $ per ton). The previous contract dated January 2015, was awarded to DXI Industries, Inc for $76, RECOMMENDATION Staff recommends approval. Fiscal Impact Fiscal Year: FY16 & 17 Acct Code: Source of Funds (Operating/Capital/Bonds): Operating Funds Budgeted Y/N: Y Amount Needed: $76,209. Fiscal Impact (Additional Information): Bid Results Chlorine 2016 Attachments

18

19 BAYTOWN AREA WATER AUTHORITY 3. b. MEETING Meeting Date: 01/20/2016 Subject: Receive BAWA 2015 Annual Financial Report Prepared For: Carl Currie, Finance Prepared By: Carl Currie, Finance Information ITEM Receive the Baytown Area Water Authority's Annual Financial Report for the fiscal year ended September 30, PREFACE Receive the Baytown Area Water Authority's Annual Financial Report for the fiscal year ended September 30, RECOMMENDATION Fiscal Impact Fiscal Year: Acct Code: Source of Funds (Operating/Capital/Bonds): Funds Budgeted Y/N: Amount Needed: Fiscal Impact (Additional Information): No fiscal impact is associated with this agenda item. BAWA 2015 AFR BAWA Disclosure Letter 2015 Attachments

20 ANNUAL FINANCIAL REPORT of the BA YTOVVN AREA WATER AUTHORITY (A Component Unit of the City of Baytown, Texas) For the Year Ended September 30, 2015 Prepared by the CITY OF BAYTOWN, TEXAS FINANCE DEPARTMENT GENERAL MANAGER Rick Davis INTERIM PLANT MANAGER Nick Woolery ACTING DIRECTOR OF FINANCE Carl Currie, CPA

21 (This page intentionally left blank.)

22 BAYTOVVNAREA WATER AUTHORITY TABLE OF CONTENTS September 30, 2015 Transmittal Letter Independent Auditors' Report Independent Auditors' Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Management's Discussion and Analysis (Required Supplementary Information) BASIC FINANCIAL STATEMENTS Statement of Net Position - Proprietary Fund Statement of Revenues, Expenses, and Changes in Fund Net Position- Proprietary Fund Statement of Cash Flows - Proprietary Fund Notes to Financial Statements REQUIRED SUPPLEMENTARY INFORMATION Budget to Actual (Budget Basis) Comparison TEXAS SUPPLEMENTARY INFORMATION Services and Rates Schedule of Operating Expenses Schedule of Temporary Investments Long-Term Debt Service Requirements by Years (All Bonded Debt Services) Changes in Long-Term Bonded Debt Comparative Schedule of Revenues and Expenses Board Members and Administrative Personnel OTHER SUPPLEMENTARY INFORMATION Analysis of Changes in Property, Plant, and Equipment Revenue Bond Coverage Schedules TSI-1 TSI-2 TSI-3 TSI-5 TSI-6 TSI-7 TSI

23 (This page intentionally left blank.)

24 BAYTOWN AREA WATER AUTHORITY 7425 Thompson Road, Baytown, Texas (281) FAX (281) January 7, 2016 Transmittal Letter To the President and Members of the Baytown Area Water Authority Board, Baytown Area Water Authority, and Citizens of the City of Baytown, Texas: The financial statements of the Baytown Area Water Authority (the "Authority") for the year ended September 30, 2015 are hereby submitted. The Authority is presented as a discrete component unit of the City of Baytown (the "City") in the City's Comprehensive Annual Financial Report. Responsibility for both the accuracy of the presented data and the completeness and fairness of the presentation, including all disclosures, rests with management. We believe the information, as presented, is accurate in all material respects. It is presented in a manner designed to set forth fairly, in all mate1ial respects, the financial position and results of operations of the Authority as measured and reported by its financial activity. All disclosures necessary to enable the reader to gain an adequate understanding of the Authority's financial affairs have been included. Belt Harris Pechacek, LLLP has audited the financial records of the Authority for the fiscal year ended September 30, 2015, and their opinion is included in this report. The financial statements are the responsibility of the Authority. The responsibility of the independent public accow1tant is to express an opinion on the Authority's financial statements based on their audit. An audit is conducted in accordance with generauy accepted auditing standards. Those standards require that the audit be planned and performed in a manner to obtain reasonable assurance as to whether the financial statements are free from material misstatement. The timely preparation of this report could not have been accomplished without the efforts and dedication of the staff. We would like to express our appreciation to our staff and other personnel who assisted in its preparation. In addition, we would like to thank the Board of Directors for their interest and support in planning and conducting the financial operations of the Authority in a responsible and progressive manner. Respectfully submitted, Rick Davis General Manager Carl Currie, CPA Acting Director of Finance

25 (This page intentionally left blank.)

26 To the Board of Directors of the Baytown Area Water Authority of the City of Baytown, Texas: Report on the Financial Statements INDEPENDENT AUDITORS' REPORT We have audited the accompanying financial statements of the business-type activities of the Baytown Area Water Authority (the "Authority"), a component unit of the City of Baytown, Texas, as of and for the year ended September 30, 2015, and the related notes to the financial statements, which collectively comprise the Authority's basic financial statements as listed in the table of contents. The prior year comparative information has been derived from the Authority's 2014 financial statements and, in our report dated January 7, 2015, we expressed an unmodified opinion on the respective financial statements of the business-type activities. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Govenunent Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Authority's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Authority's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. Partners Robert Belt, CPA Stephanie E. Harris, CPA Nathan Krupke, CPA Houston 3210 Bingle Rd., Ste. 300 Houston, TX Bellville P.O.Box826 Bellville, TX Austin 100 Congress Ave., Ste Austin, TX All Offices info@txauditors.com fax ==: Governmental - Audit Quality Center

27 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions fu our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities of the Authority as of September 30, 2015, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended, in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplenientary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis and budgetary comparison information, identified as Required Supplementary fuformation on the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the Required Supplementary fuformation in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Authority's basic financial statements. The transmittal letter, Texas Supplementary fuformation, and other supplementary information are presented for purposes of additional analysis and are not required parts of the financial statements. They have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards fu accordance with Government Auditing Standards, we have also issued our report dated January 7, 2016 on our consideration of the Authority's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Authority's internal control over financial reporting and compliance. ~LT~RRIS ~CHACEK, U...LP \_; Belt Harris Pechacek, LLLP Certified Public Accountants Houston, Texas January 7,

28 INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON CO:MPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS January 7, 2016 To the Board of Directors of the Baytown Area Water Authority of the City of Baytown, Texas: We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the accompanying financial statements of the business-type activities of the Baytown Area Water Authority ( the "Authority"), a component unit of the City of Baytown, Texas, as of and for the year ended September 30, 2015, and the related notes to the financial statements, which collectively comprise the Authority's basic financial statements as listed in the table of contents and have issued our report thereon dated January 7, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Authority's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Authority's internal control. Accordingly, we do not express an opinion on the effectiveness of the Authority's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the Authority's financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Partners Robert Belt, CPA Stephanie E. Harris, CPA Nathan K.rupke,CPA Houston Bellville Austin 3210 Bingle Rd., Ste. 300 P.O.Box Congress Ave., Ste Houston, TX Bellville, TX Austin, TX All Offices info@txauditors.com fax ==: Governmental - Audit Quality Center

29 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Authority's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Authority's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Authority's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. ClJ:a T ~RR.IS ~CHACEK, LLL.P \...! Belt Harris Pechacek, LLLP Certified Public Accountants Houston, Texas 4

30 MANAGEMENT'S DISCUSSION AND ANALYSIS 5

31 (This page intentionally left blank.) 6

32 BAYTOVVNAREA WATER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS For the Year Ended September 30, 2015 The purpose of the Management's Discussion and Analysis (MD&A) is to give the readers an objective and easily readable analysis of the Baytown Area Water Authority's (the "Authority") financial activities for the year. The analysis is based on currently lmown facts, decisions, or economic conditions. It presents short and long-term analysis of the Authority's activities, compares current year results with those of the prior year, and discusses the positive and negative aspects of that comparison. Please read the MD&A in conjunction with the Authority's financial statements, which follow this section. THE STRUCTURE OF OUR ANNUAL REPORT Components of the Financial Section I Management's Discussion and Analysis I Basic Financial Statements I Required Supplementary Information Independent Auditors' Report Statement of Net Position Statement of Revenues, Expenses, and Changes in Net Position Statement of Cash Flows Notes to the Financial Statements Summary Detail The Authority's basic financial statements include the statement of net position; statement of revenues, expenses, and changes in net position; statement of cash flows; and notes to the financial statements. This report also includes supplementary information intended to furnish additional detail to support the basic financial statements themselves. Basic Financial Statements The basic financial statements report information for the Authority as a whole. These statements include transactions and balances relating to all assets, including infrastructure capital assets. These statements are designed to provide information about cost of services, operating results, and financial position of the Authority as an economic entity. The Statement of Net Position and the statement of revenues, expenses, and changes in net position, which appear first in the Authority's financial statements, report information on the Authority's activities that enable the reader to understand the financial condition of the Authority. These statements are prepared using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account even if cash has not yet changed hands. The Statement of Net Position presents information on all of the Authority's assets, liabilities, and deferred inflows/outflows of resources, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the Authority is improving or deteriorating. Other nonfinancial factors, such as the Authority's customer base and the condition of the Authority's infrastructure, need to be considered to assess the overall health of the Authority. 7

33 BA YTOVVN AREA WATER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) For the Year Ended September 30, 2015 The statement of revenues, expenses, and changes in net position presents information showing how the Authority's net position changed during the most recent year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows - the accrual method. The statement of cash flows presents information about the Authority's cash receipts and cash payments during the reporting period. The statement reports cash receipts, cash payments, and net changes in cash resulting from operations, investing, and financing activities and provides answers to such questions as where did cash come from, what was cash used for, and what was the change in the cash balance during the reporting period. The basic financial statements can be found after the MD&A within this report. Notes to the Financial Statements The notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the financial statements. The notes are the last section of the basic financial statements. Other Information In addition to the financial statements, this MD&A, and accompanying notes, this report also presents certain Required Supplementary Information (RSI) concerning the Authority's budgetary comparison schedule. RSI can be found after the notes to the basic financial statements. FINANCIAL ANALYSIS OF THE AUTHORITY As noted earlier, net position may serve over time as a useful indicator of the Authority's financial position. The Authority's total net position increased from $35,708,626 to $40,029,008 (12.10 percent). Key elements of this increase are as follows: Operating revenues increased $431,546 or 3.69 percent due to an increase in water usage rates. Capital assets, net of accumulated depreciation increased $3,904,431 or percent due to a land addition of $2,613,639 and construction in progress addition of $2,037,649. Unrestricted net position decreased by $102,484 from a balance of $5,303,082 to $5,200,598 (1.93 percent) at the end of this year. Unrestricted net position can be used to finance day-to-day operations without constraints established by debt covenants and enabling legislation. 8

34 Condensed Statement of Net Position: BAYTOVVNAREA WATER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) For the Year Ended September 30, 2015 Dollar Percentage Change Change Current and other assets $ 5,524,632 $ 7,936,862 $ (2,412,230) (30.4%) Restricted assets 10,519,106 9,985, , % Capital assets, net 39,567,614 35,663,183 3,904, % Total Assets 55,611,352 53,585,092 2,026, % Deferred charge on refunding Total Deferred Outflows of Resources 74,088 95,042 (20,954) (22.0%) Current liabilities 324, ,609 (7,575) (2.3%) Current liabilities - restricted 2,267,720 2,593,137 (325,417) (12.5%) Noncurrent liabilities 13,064,678 15,046,762 (1,982,084) (13.2%) Total Liabilities 15,656,432 17,971,508 (2,315,076) (12.9%) Net investment in capital assets 24,597,024 21,098,634 3,498, % Restricted for: Capital projects 8,163,032 5,464,126 2,698, % Debt service 2,068,354 3,842,784 (1,774,430) (46.2%) Unrestricted 5,200,598 5,303,082 (102,484) (1.9%) Total Net Position $ 40,029,008 $ 35,708,626 $ 4,320, % Condensed Statement of Revenues, Expenses, and Changes in Net Position: Dollar Percentage Change Change Operating revenues $ 12,132,227 $ 11,700,681 $ 431, % N onoperating revenues 73,267 79,869 (6,602) (8.3%) Total Revenues 12,205,494 11,780, , % Depreciation expense 1,193,343 1,106,051 87, % Operating expenses 6,179,948 5,570, , % N onoperating expenses 511, ,781 (50,960) (9.1%) Total Expenses 7,885,112 7,239, , % Change in Net Position 4,320,382 4,541,421 (221,039) (4.9%) Beginning net position 35,708,626 31,167,205 4,541, % Ending Net Position $ 40,029,008 $ 35,708,626 $ 4,320, % 9

35 BUDGETARY HIGHLIGHTS BA YTOVVN AREA WATER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) For the Year Ended September 30, 2015 Operating revenues were $79,4 71 under the budget estimate due to less than expected water sales. Other operating expenses were $138,124 under budget due primarily to less than anticipated costs for contract personnel. Nonoperating expenses were $2,526,649 under budget due primarily to other expenses for capital projects that were not started but were budgeted. CAPITAL ASSETS The Authority's plant operates at an average of 12.3 million gallons per day (MGD). The average capacity of the plant is 22.2 MGD and the peak capacity is 26 MGD. During the past 30 years, there has not been an interruption in service. The Authority is in compliance with all rules and regulations of the Environmental Protection Agency, Texas Commission on Environmental Quality, and Texas Department of State Health Services applicable to surface water treatment, analysis, and operations. At year end, the Authority had invested $39,567,614 in capital assets, net of accumulated depreciation. More detailed information about the Authority's capital assets is presented in Note 5 to the financial statements. LONG-TERM DEBT The Authority has sufficient reserves established for debt service requirements. The Authority's revenue bonds carry the rating of "A2" with Moody's Investors Service and "AA-" with Standard & Poor's. At year end, the Authority had $15,005,000 in revenue bonds outstanding versus $16,920,000 last year. More detailed information about the Authority's long-term liabilities is presented in Note 6 to the financial statements. ECONOMIC FACTORS The budget projected sales of $12,211,698 for MGD based upon an average rainfall year. A three percent rate increase, effective October 1, 2014, has been factored into sales projections. Fluctuations to average rainfall can significantly impact actual sales. The current rate structure is $2.61 per 1,000 gallons for the City of Baytown and $2.65 per 1,000 gallons for the customers outside the City of Baytown to cover the increased cost of operations, including the purchase of untreated water. Since inception of the Authority's plant in 1981, there have been rate increases in 1988, 1993, 1999, 2007, 2009, 2010, 2011, 2013, 2014, and The Authority received a notice of a 1.9 percent increase from $ to $ effective April 1, 2011, a notice of a 3.3 percent increase from $ to $ effective April 1, 2012, a notice of a 3.6 percent increase from $ to $ effective April 1, 2013 and a notice of 1.2 percent increase from $ to $ effective April 1, The City of Houston adjusts its rates by the amount of the Producers Price Index for the prior year with the new rates taking effect April 1 of each year. In addition, a surcharge for additional water purchased over the 15.8 MGD average of the month is five percent. CONTACTING THE AUTHORITY'S FINANCIAL MANAGEMENT This financial report is designed to provide citizens, taxpayers, customers, investors, and creditors with a general overview of the Authority's finances and to show the Authority's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the City of Baytown Finance Department, 2401 Market Street, Baytown, Texas A copy of the budget is available to the public at the Sterling Municipal Library and at the City ofbaytown's City clerk office. 10

36 BASIC FINANCIAL STATEMENTS 11

37 (This page intentionally left blank.) 12

38 Assets Current Assets Cash and cash equivalents Receivables BA YTO"WN AREA WATER AUTHORITY STATEMENT OF NET POSITION PROPRIETARY FUND September 30, 2015 Total Current Assets Restricted Assets Cash and cash equivalents - debt service Cash and cash equivalents - capital improvements Total Restricted Assets Noncurrent Assets Nondepreciable capital assets: Land Construction in progress Depreciable capital assets: Plant and equipment Less accumulated depreciation Total Capital Assets, Net of Depreciation Total Noncurrent Assets Total Assets Deferred Outflows of Resources Deferred charge on refunding $ Business-Type Activities Enterprise Fund ,359,704 $ 7,789, , ,907 5,524,632 7,936,862 2,257,343 8,261,763 10,519,106 2,877,960 2,759,579 53,402,181 (19,472,106) 39,567,614 39,567,614 55,611,352 74,088 4,055,869 5,929,178 9,985, ,321 1,290,408 52,387,217 (18,278,763) 35,663,183 35,663,183 53,585,092 95,042 Liabilities Current Liabilities Payable from Unrestricted Assets Accounts payable - unrestricted Total Current Liabilities Payable From Unrestricted Assets Current Liabilities Payable from Restricted Assets Accrued interest payable Accounts payable - restricted Bonds payable due within one year Total Current Liabilities Payable From Restricted Assets Total Current Liabilities Non current Liabilities Bonds payable due in more than one year Net Position Net investment in capital assets Restricted for: Capital projects Debt service Unrestricted See Notes to Financial Statements. Total Liabilities Total Net Position $ 324, , ,989 98,731 1,980,000 2,267,720 2,591,754 13,064,678 15,656,432 24,597, , , , ,052 1,915,000 2,593,137 2,924,746 15,046,762 17,971,508 21,098,634 8, 163,032 5,464, 126 2,068,354 3,842,784 5,200,598 5,303,082 40,029,008 $ 35,708,626 ======:::::::== 13

39 (This page intentionally left blank.) 14

40 BAYTOVVN AREA WATER AUTHORITY STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION PROPRIETARY FUND For the Year Ended September 30, 2015 Operating Revenues Sale of treated water: City of Baytown Municipal utility districts $ 10,621,625 1,510,602 Total Operating Revenues 12,132,227 Business-Type Activities Enterprise Fund $ 10,249,406 1,451,275 11,700,681 Operating Expenses Raw water purchases and other supplies Contract personnel costs Maintenance Services Depreciation Total Operating Expenses Operating Income Non-operating Revenues (Expenses) Interest income Interest expense and fiscal agent fees Rents and royalties Miscellaneous Total Non-operating (Expenses) Beginning net position Change in Net Position 3,879, , , ,816 1,193,343 7,373,291 4,758,936 8,968 (511,821) ,700 (438,554) 4,320,382 35,708,626 3,629, , , ,233 1,106,051 6,676,348 5,024,333 14,017 (562,781) ,938 (482,912) 4,541,421 31,167,205 Ending Net Position $ 40,029,008 $ 35,708,626 See Notes to Financial Statements. 15

41 (This page intentionally left blank.) 16

42 BA YTOVVN AREA WATER AUTHORITY STATEMENT OF CASH FLOWS PROPRIETARY FUND For the Year Ended September 30, 2015 Cash Flows from Operating Activities Cash received from customers for sale of treated water $ Cash payments to suppliers for goods and services Cash payments to contract personnel for services Net Cash Provided by Operating Activities Business-Type Activities Enterprise Fund ,114,206 $ 11,667,443 (5,652,409) (925,531) 5,536,266 (4,215,163) (890,567) 6,561,713 Cash Flows from Noncapital Financing Activities Rents and royalties received Miscellaneous revenues received Net Cash Provided by Noncapital Financing Activities Cash Flows from Capital and Related Financing Activities Construction of capital assets Principal paid on capital debt Interest and fiscal agent fees paid Net Cash (Used) by Capital and Related Financing Activities Cash Flows from Investing Activities Interest received Net Increase (Decrease) in Cash and Cash Equivalents ,700 64,299 (5,097,774) (1,915,000) (492,951) (7,505,725) 8,968 (1,896,192) ,938 65,852 (1,448,281) (1,860,000) (543,913) (3,852,194) 14,017 2,789,388 Beginning cash and cash equivalents Ending Cash and Cash Equivalents $ Unrestricted cash and cash equivalents $ Restricted cash and cash equivalents Ending Cash and Cash Equivalents $ Reconciliation of Operating Income (Loss) to Net Cash Provided (Used) by Operating Activities Operating income $ Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation Changes in Operating Assets and Liabilities: (Increase) Decrease in Current Assets: Receivables, net Increase (Decrease) in Current Liabilities: Accounts payable Restricted payables Net Cash Provided by Operating Activities $ See Notes to Financial Statements. 17,775,002 14,985,614 15,878,810 $ 17,775,002 ====== 5,359,704 $ 7,789,955 10,519,106 9,985,047 15,878,810 $ 17,775,002 ====== 4,758,936 $ 5,024,333 1,193,343 1,106,051 (18,021) (33,238) (7,575) 36,130 (390,417) 428,437 5,536,266 $ 6,561,713 ========= 17

43 (This page intentionally left blank.) 18

44 BAYTOVVN AREA WATER AUTHORITY NOTES TO FINANCIAL STATEMENTS For the Year Ended September 30, 2015 NOTE 1- CREATION OF AUTHORITY The Baytown Area Water Authority (the "Authority") was created by House Bill No. 967 of the Texas Legislature on June 15, The Authority was created to purchase and distribute surface and/or underground water supplies to persons, corporations, municipal corporations, political subdivisions, and others. The boundaries of the Authority include all of the City of Baytown, Texas (the "City") and most of Baytown's extra-territorial jurisdiction in East Harris County, Texas. Presently, the Authority provides water to eight municipal entities which in tum service a total population area of 81, 000 people. Administration of the Authority is vested in the Board of Directors, which held its first meeting on September 20, The Board of Directors is appointed by the City Council. The first Authority bonds were sold in May The water treatment plant and a portion of the water transmission lines were completed in 1981 and actual operations and sale of treated water began in April NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements and accounting policies of the Authority are prepared in confonnity with generally accepted accounting principles for local governmental units as prescribed by the Governmental Accounting Standards Board (GASB), which is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The Authority's significant accounting policies are described below. A. Reporting Entity The City exercises significant influence over the operations of the Authority and, as a result, the Authority is a discretely presented component unit of the City. The Authority's financial statements are included as a discrete component unit in the government-wide financial statements of the City. The Authority has no component units and is presented on a stand-alone basis. The accounting policies of the Authority conform to generally accepted accounting principles as applicable to governmental entities and are presented as a proprietary fund type. The Authority has no employees. Personnel employed by the City are responsible for the physical operation and maintenance of the water treatment plant. The City's personnel perform the purchasing and accounting functions of the Authority. The Authority reimburses the City for payroll costs and related fringe benefits of personnel assigned to the water treatment plant operations and for goods and services purchased on its behalf. B. Basis of Presentation - Fund Financial Statements The fund financial statements provide information about the Authority's funds. Separate statements for each fund category, proprietary, are presented. The emphasis of fund financial statements is on major enterprise funds, each displayed in a separate column. The Authority reports the following enterprise fund: The enterprise fund is used to account for water operations. The services are financed and operated in a manner similar to private business enterprises where the intent of the governing body is that the costs ( expenses including depreciation) of providing goods or services to the general public on a continuing basis will be financed or recovered primarily through user charges. The enterprise fund is considered a major fund for reporting purposes. 19

45 BAYTO"WNAREA WATER AUTHORITY NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2015 C. Measurement Focus and Basis of Accounting The accounting and financial reporting treatment is determined by the applicable measurement focus and basis of accounting. Measurement focus indicates the type of resources being measured such as current financial resources or economic resources. The basis of accounting indicates the timing of transactions or events for recognition in the financial statements. The proprietary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. D. Budget The general manager for the Authority formulates a budget for the Authority's fiscal year beginning on October 1 and ending on September 30. Both the Authority Board and the City Council approve the annual budget. E. Deposits and Investments The Authority's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. For the purpose of the statement of cash flows, the proprietary fund types consider temporary investments with maturity of three months or less when purchased to be cash equivalents. In accordance with GASB Statement No. 31, Accounting and Reporting for Certain Investments and External Investment Pools, the Authority reports all investments at fair value, except for "money market investments" and "2a7-like pools." Money market investments, which are shortterm, highly liquid debt instruments that may include U.S. Treasury and agency obligations, are reported at amortized costs. Investment positions in external investment pools that are operated in a manner consistent with the SEC's Rule 2a7 of the Investment Company Act of 1940, such as TexPool, are reported using the pools' share price. The Authority has adopted a written investment policy regarding the investment of its funds as defined in the Public Funds Investment Act, Chapter 2256, Texas Government Code. In summary, the Authority is authorized to invest in the following: Direct obligations of the U.S. government Fully collateralized certificates of deposit Fully collateralized repurchase agreements Banker's acceptances that meet certain criteria Commercial paper that meet certain criteria Mutual funds of specific type Collateralized guaranteed investment contract Statewide investment pools F. Comparative Data Comparative total data for the prior year have been presented in selected sections of the accompanying financial statements in order to provide an understanding of the changes in the Authority's financial position and operations. 20

46 BAYTOVVNAREA WATER AUTHORITY NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2015 G. Receivables and Payables All receivables are shown at full value and are expected to be 100 percent collected. The Authority reports payables as obligations that are expected to be financed with current, available financial resources. H. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets ( e.g., water lines), have been recorded at cost. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. Major outlays for capital assets and improvements are capitalized as projects are constructed. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. Property, plant, and equipment of the Authority are depreciated using the straight-line method over the following estimated useful years: Asset Description Buildings Improvements other than buildings Machinery and equipment Estimated Useful Life 18 to 50 years 10 to 50 years 5 to 30 years I. Deferred Outflows/Inflows of Resources In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The Authority only has one item that qualifies for reporting in this category. It is the deferred charge on refunding reported in the Statement of Net Position. A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The Authority has no items that qualify for reporting in this category. J. Long-Term Obligations The Authority reports long-term debt as a liability on the Statement of Net Position. Bond premiums and discounts are amortized over the life of the bonds. Bonds payable are reported net of the applicable bond premium or discount. 21

47 BA YTOVVN AREA WATER AUTHORITY NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2015 K. Net Position Flow Assumption Sometimes the Authority will fund outlays for a particular purpose from both restricted ( e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted net position and unrestricted net position in the proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the Authority's policy to consider restricted net position to have been depleted before unrestricted net position is applied. L. Estimates The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures/expenses during the reporting period. Actual results could differ from those estimates. M. Proprietary Fund Operating and Non operating Revenues Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the enterprise fund are charges to customers for sales and services. The enterprise fund also recognizes as operating revenue the portion of tap fees intended to recover the cost of connecting new customers to the system. Operating expenses for the enterprise fund include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. NOTE 3 - DEPOSITS AND INVESTMENTS Deposits - State statutes require that all deposits in financial institutions be fully collateralized by U.S. government obligations or its agencies and instrumentalities or direct obligations of Texas or its agencies and instrumentalities that have a market value of not less than the principal amount of the deposits. The Authority's deposits were fully insured or collateralized as required by the state statutes at year end. The City consolidates cash to maximize investment earnings and streamline operations. The City's deposits were fully insured or collateralized as required by state statutes at year end. Investments - The Authority's Board has adopted a written investment policy regarding the investment of its funds as defined by the Public Funds Investment Act (Chapter 2256 of the Texas Government Code). The investments of the Authority are in compliance with the Board's investment policy. The Authority is authorized to invest in U.S. government obligations and government pools. Investment Type Government pool (TexPool) Municipal bonds Fair Value $ 13,583,484 1,487,806 Total $ 15,071,290 Weighted Average (Days) Credit Rating AAArn AA+/Aa2 Portfolio Weighted Average Maturity

48 BAYTOVVNAREA WATER AUTHORITY NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2015 Interest Rate Risk - In compliance with the Authority's investment policy and as of year end, the Authority minimized the interest rate risk related to the decline in market value of securities due to rising interest rates in the portfolio by: limiting the weighted average of maturity not to exceed five years; structuring the investment portfolio so that securities matured to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the secondary market prior to maturity; monitoring credit ratings of portfolio positions to ensure compliance with rating requirements imposed by the Public Funds Investment Act; and investing operating funds primarily in shorter term securities or similar government investment pools. Credit Risk- As of year end and in compliance with the Authority's investment policy, the Authority minimized credit risk losses due to default of a security issuer or backer by: limiting investments to the safest types of securities; prequalifying the financial institutions, brokers/dealers, intermediaries, and advisers with which the Authority will do business; and diversifying the investment portfolio so that potential losses on individual securities were minimized. The Authority invests in TexPool, which was established as a trust company with the Treasurer of the State of Texas as trustee, segregated from all other trustees, investments, and activities of the trust company. The State Comptroller of Public Accounts exercises oversight responsibility over TexPool. Oversight includes the ability to significantly influence operations, designation of management, and accountability for fiscal matters. Additionally, the State Comptroller has established an advisory board composed of both participants in TexPool and other persons who do not have a business relationship with TexPool. The advisory board members review the investment policy and management fee structure. Finally, Standard & Poor's rates TexPool "AAAm". As a requirement to maintain the rating, weekly portfolio information must be submitted to Standard & Poor's, as well as to the office of the Comptroller of Public Accounts, for review. TexPool operates in a manner consistent with the SEC's Rule 2a7 of the Investment Company Act of TexPool uses amortized cost rather than fair value to report net assets to compute share prices. Accordingly, the fair value of the position in TexPool is the same as the value of TexPool. NOTE 4 - RESTRICTED CASH AND CASH EQUIVALENTS Restricted cash and cash equivalents include proceeds from the sale of bonds issued for construction and reserves held to satisfy the debt service reserve requirements of the Authority's bond ordinances. The restricted cash and cash equivalents at year end are as follows: Bond construction funds Bond reserve funds $ 8,261,763 2,257,343 $ 10,519,106 23

49 NOTE 5 - CAPITAL ASSETS BA YTOVVN AREA WATER AUTHORITY NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2015 A summary of changes in capital assets for the year ended September 30, 2015 is as follows: Beginning Ending Balance Increases (Decreases) Balance Capital assets, not being depreciated: Land $ 264,321 $ 2,613,639 $ $ 2,877,960 Construction in progress 1,290,408 2,037,649 (568,478) 2,759,579 Total Capital Assets Not Being Depreciated 1,554,729 4,651,288 (568,478) 5,637,539 Capital assets, being depreciated: Buildings 1,021,268 1,021,268 Improvements other than buildings 47,029, ,847 47,440,207 Machinery and equipment 4,336, ,117 4,940,706 Total Capital Assets Being Depreciated 52,387,217 1,014,964 53,402,181 Total Capital Assets 53,941,946 5,666,252 (568,478) 59,039,720 Less accumulated depreciation for: Buildings (621,181) (23,488) (644,669) Improvements other than buildings (13,751,156) (1,082,987) (14,834,143) Machinery and equipment (3,906,426) (86,868) (3,993,294) Total Accumulated Depreciation (18,278,763) (1,193,343) (19,472,106) Total Capital Assets Being Depreciated, Net 34,108,454 (178,379) 33,930,075 Total Business-Type Activities Capital Assets, Net $ 35,663,183 $ 4,472,909 $ (568,478) 39,567,614 Less associated debt (15,044,678) Plus deferred charge on refunding 74,088 Net Investment in Capital Assets $ 24,597,024 NOTE6-REVENUEBONDSPAYABLE Outstanding bonds are payable using revenues generated from the sale of treated water to the City and other entities. The City also guarantees payment of bonds and such bonds may be redeemed prior to their scheduled maturity. The Authority is in compliance with all bond resolutions. The resolutions provide that reserves are sufficient to pay the current portion of the principal and interest payments. Redemption Provisions 2006 Series Baytown Area Water Authority Water Supply Contract Revenue Bonds issued for $13,290,000. The Authority reserves the right, at its option, to redeem bonds having stated maturities on or after May 1, 2017, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof; on May 1, 2016, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption Series Baytown Area Water Authority Water Supply Contract Revenue Refunding Bonds issued for $6,505,000. The Authority reserves the right, at its option, to redeem bonds having stated maturities on or after May 1, 2016, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof; on May 1, 2015, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. 24

50 BAYTOVVNAREA WATER AUTHORITY NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, Series Baytown Area Water Authority Water Supply Contract Revenue and Refunding Bonds issued for $8,315,000. The Authority reserves the right, at its option, to redeem bonds having stated maturities on or after May 1, 2023, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof; on May 1, 2022, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. The following is a summary of changes in bonds payable for the year ended September 30, 2015: Series Amounts Beginning Ending Due Within Balance Additions Reductions Balance One Year $ 5,420,000 $ $ (620,000) $ 4,800,000 $ 640,000 4,180,000 (775,000) 3,405, ,000 7,320,000 (520,000) 6,800, ,000 Total Bonds 16,920,000 (1,915,000) 15,005,000 1,980,000 Less net (discount) and premium 41,762 (2,084) 39,678 Total Business-Type Activities $ 16,961,762 $ $ (1,917,084) $ 15,044,678 * $ 1,980,000 Long term debt payable in more than one year $ 13,064,678 Less deferred charge on refunding from associated debt (74,088) * Long term debt related to capital assets $ 14,970,590 * As of year end, the debt service requirements on bonds outstanding for the next five years and thereafter are as follows: Year Principal Interest Total 2016 $ 1,980,000 $ 453,573 $ 2,433, ,030, ,393 2,423, ,090, ,180 2,421, ,165, ,518 2,429, ,290, ,060 1,485, ,935, ,282 3,535, ,735, ,064 2,045, ,000 41, ,124 Total $ 15,005,000 $ 2,589,194 $ 17,594,194 On September 14, 2015, the underlying ratings as assigned by Standard and Poor's for the 2006 Series Baytown Area Water Authority Water Supply Contract Revenue Bonds, the 2007 Series Baytown Area Water Authority Water Supply Contract Revenue Refunding Bonds, and the 2012 Series Baytown Area Water Authority Water Supply Contract Revenue and Refunding Bonds were downgraded to "A+" from "AA-". 25

51 NOTE 7 - NET POSITION BAYTOVVNAREA WATER AUTHORITY NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2015 The Authority's net position has been reported net of related outstanding debt and unspent bond proceeds. The four components of net position (net investment in capital assets, restricted net position for capital projects, restricted net position for debt service, and unrestricted net position) are detailed below: Net Investment in Capital Assets: Capital assets, net of accumulated depreciation $ 39,567,614 $ 35,663,183 Outstanding debt that applies to capital assets (14,970,590) (14,564,549) Net Investment in Capital Assets 24,597,024 21,098,634 Restricted for Capital Projects: Capital projects restricted assets 8,261,763 5,929,178 Current liabilities from capital projects (98,731) (465,052) Restricted Net Position for Capital Projects 8,163,032 5,464,126 Restricted for Debt Service: Debt service restricted assets 2,257,343 4,055,869 Accrued interest (188,989) (213,085) Restricted Net Position for Debt Service 2,068,354 3,842,784 Unrestricted Net Position: Current assets 5,524,632 5,634,691 Current liabilities (324,034) (331,609) Unrestricted Net Position 5,200,598 5,303,082 Total Net Position $ 40,029,008 $ 35,708,626 NOTE 8 - RISK MANAGEMENT The Authority is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; and natural disasters for which the Authority cooperatively purchases commercial insurance and participates in a public entity risk pool with the City. The Authority and the City participate along with 2,617 other entities in the Texas Municipal League's Intergovernmental Risk Pool (the "Pool"). The Pool purchases commercial insurance at group rates for participants in the Pool. The Authority has no additional risk or responsibility to the Pool, outside of the payment of insurance premiums. The Authority has not significantly reduced insurance coverage or had settlements that exceeded coverage amounts for the past three fiscal years. NOTE 9 - CONTINGENT LIABILITIES The Tax Reform Act of 1986 instituted certain arbitrage restrictions consisting of complex regulations with respect to issuance of tax-exempt bonds after August 31, Arbitrage regulations deal with the investment of tax-exempt bond proceeds at an interest yield greater than the interest yield paid to bondholders. Generally, all interest paid to bondholders can be retroactively rendered taxable if applicable rebates are not reported and paid to the Internal Revenue Service at least every five years for applicable bond issues. Accordingly, there is the risk that if such calculations are not performed, or are not performed correctly, a substantial liability to the Authority could result. The Authority periodically engages an arbitrage consultant to perform the calculations in accordance with the rules and regulations of the IRS. 26

52 BAYTOVVNAREA WATER AUTHORITY NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2015 NOTE 10 - COMMITMENTS AND CONTIGENCIES On October 24, 1994, the Authority entered into a 26-year agreement with the City of Houston (the "Agreement") to purchase raw water for treatment. The Agreement was amended in January 2005 to increase the maximum obligation of the City of Houston to provide water from 11.9 MGD to 15.8 MGD and to extend the termination date to December 31, The Authority may reserve additional monthly quantities of untreated water by giving 30 days' notice to the City of Houston. Should the consumption exceed the contract quantity by ten percent, a five percent surcharge shall be charged against that portion of the consumption that exceeds the contract quantity. The Authority is contractually obligated to provide treated water to the City. As with the City of Houston Agreement, the Authority increased the maximum obligation to provide treated water to the City from MGD to MGD and extended the term of the contract through calendar year The Authority is also obligated to provide 1.58 MGD to other municipal entities, making the total obligation 15.8 MGD. NOTE 11-RELATED PARTIES, CONCENTRATIONS, AND ECONOMIC DEPENDENCY The Authority is a discretely presented component unit of the City. In addition, approximately 90 percent of the Authority's operating revenues are attributable to the sale of treated water to the City. 27

53 (This page intentionally left blank.) 28

54 REQUIRED SUPPLEMENTARY INFORMATION 29

55 (This page intentionally left blank.) 30

56 BA YTO-WN AREA WATER AUTHORITY BUDGET TO ACTUAL (BUDGET BASIS) COMPARISON For the Year Ended September 30, 2015 Variance Original and 2015 Positive Final Budget (Budget Basis) (Negative) O:uerating Revenues Sale of treated water: City of Baytown $ 10,714,529 $ 10,621,625 $ (92,904) Municipal utility districts 1,497,169 1,510,602 13,433 Total Operating Revenues 12,211,698 12,132,227 (79,471) O:uerating Ex:uenses Raw water purchase and other supplies 3,945,542 3,879,912 65,630 Contract personnel costs 1,139, , ,581 Maintenance 222, ,689 (91,389) Services 661, ,816 (49,698) Total Operating Expenses 5,968,072 5,829, ,124 Non-o:uerating Revenue (Ex:uenses} Interest income 2,000 6,312 * 4,312 Interest expense and other expenses (7,570,650) (5,044,001) 2,526,649 Rents and royalties Miscellaneous income 63,700 63,700 Total Non-operating (Expenses) (7,504,950) ( 4,973,390) 2,531,560 Changes in Net Position - Budgetary Basis $ (1,261,324) 1,328,889 $ 2,590,213 Reconciliation of Budget Basis to GAAP Depreciation (1,193,343) Principal payments 1,915,000 Interest income from restricted bonds 2,656 Capital purchases 2,617,180 Adjustment to remove net effect of combined funds (350,000) Change in Net Position $ 4,320,382 * Interest income does not include restricted interest income on bond funds. Notes to Required Supplementary Infom1ation 1. Annual budget is adopted on a basis consistent with generally accepted accounting principles (GAAP), with the exception of reconciling items noted above. 31

57 (This page intentionally left blank.) 32

58 TEXAS SUPPLEMENTARY INFORMATION 33

59 (This page intentionally left blank.) 34

60 BA YTO-WN AREA WATER AUTHORITY TSI-1 SERVICES AND RATES For the Year Ended September 30, Services Provided by the Authority: Wholesale Water 2. a. Retail Rates Based on 5/8" Meter: Retail Rates Not Applicable WATER: City of Baytown Other districts Minimum Charge Minimum Usage Flat Rate YIN $2.61 per 1000 gallons NIA $2.65 per 1000 gallons NIA N N Rate per 1000 Gallons over Minimum NIA NIA Usage Levels NIA NIA SURCHARGE: City of Baytown Other districts 5 percent on that portion that exceeds contract quantity Surcharge varies per municipal entity b. Retail Service Providers: Number of wholesale water connections within the Authority as of the fiscal year end. Provide actual numbers and single family equivalents (ESFC) as noted: Inactive Connections Active Connections Active ESFC (ESFC) Wholesale Cities and MUD's 8 Total 8 3. Total Water Consumption During the Fiscal Year: Gallons pumped into system: Gallons billed to customers: 4,887,952,000 4,811,519,000 Water Accountability Ratio: Standby Fees: Does the Authority assess standby fees? No 5. Location of Authority: Counties in which the Authority is located: Harris and Chambers Counties Is the Authority located entirely within one county? No Is the Authority located within a city? Partially City in which Authority is located: Baytown Is the Authority located within a city's extra territorial jurisdiction (ETJ)? Partially ETJs in which the Authority is located: Baytown Is the general membership of the Board appointed by an office outside the Authority? Yes IfYes, by whom? City of Baytown City Council 35

61 BAYTOVVNAREA WATER AUTHORITY TSI-2 SCHEDULE OF OPERATING EXPENSES For the Year Ended September 30, 2015 Professional Fees: Auditing $ 6,890 Other Services 191,750 Purchases of Raw Water 3, 119,831 Contracted Personnel Services 925,531 Utilities 512,176 Repairs and Maintenance 663,689 Chemicals 664,393 Administrative Expenses 95,688 Depreciation 1, 193,343 Total Expenses $ 7,373,291 The Authority has no employees; however, 15 full-time City of Baytown employees are contracted to the Authority. 36

62 BA YTOW"N AREA WATER AUTHORITY TSI-3 SCHEDULE OF TEMPORARY INVESTMENTS For the Year Ended September 30, 2015 Identification or Certificate Interest Balance at End Number Rate Maturity Date of Year JPMorgan Chase Checking Acct 0.00% NIA $ 5,000 Tex.Pool NIA 0.10% NIA 13,583,484 Pooled cash and investments NIA 0.37% NIA 2,290,326 Total Cash and Investments $ 15,878,810 Accrued Interest Receivable at End of Year NIA NIA NIA 37

63 BA YTOVVN AREA WATER AUTHORITY TSI-5 LONG-TERM DEBT SERVICE REQUIREMENTS BY YEARS (ALL BONDED DEBT SERVICES) For the Year Ended September 30, 2015 Annual Requirements for All Series Due During Fiscal Principal Interest Interest Year Ending Due 5/01 Due 5/01 Due 11/01 Total 2016 $ 1,980,000 $ 226,786 $ 226,786 $ 2,433, ,030, , ,696 2,423, ,090, , ,590 2,421, ,165, , ,259 2,429, ,290,000 97,530 97,530 1,485, ,025,000 81,435 81,435 1,187, ,000 67,878 67,878 1,120, ,000 54,197 54, , ,000 50,447 50, , ,000 46,185 46, , ,000 41,460 41, , ,000 36,585 36, , ,000 31,350 31, , ,000 25,744 25, , ,000 19,894 19, , ,000 13,650 13, , ,000 6,913 6, ,825 $ 15,005,000 $ 1,294,597 $ 1,294,597 $ 17,594,194 Series 2006 Due During Fiscal Principal Interest Interest Year Ending Due 5/01 Due 5/01 Due 11/01 Total 2016 $ 640,000 $ 68,130 $ 68,130 $ 776, ,000 59,490 59, , ,000 50,484 50, , ,000 41,034 41, , ,000 31,130 31, , ,000 20,835 20, , ,000 10,178 10, ,356 $ 4,800,000 $ 281,281 $ 281,281 $ 5,362,562 38

64 BAYTO"WN AREA WATER AUTHORITY TSI-5 LONG-TERM DEBT SERVICE REQUIREMENTS BY YEARS (ALL BONDED DEBT SERVICES) (Continued) For the Year Ended September 30, 2015 Due During Fiscal Year Ending 2016 $ $ Principal Due 5/01 805,000 $ 835, , ,000 3,405,000 $ Series 2007 Interest Due 5/01 70,306 54,206 37,506 19, ,143 Interest Due 11/01 $ 70,306 54,206 37,506 19, 125 $ 181,143 $ $ Total 945, , , ,250 3,767,286 Due During Fiscal Year Ending 2016 $ $ Principal Due 5/01 535,000 $ 540, , , , , , , , , , , , , , , ,000 6,800,000 $ Series 2012 Interest Interest Due 5/01 Due 11/01 88,350 $ 88,350 83,000 83,000 77,600 77,600 72,100 72,100 66,400 66,400 60,600 60,600 57,700 57,700 54,197 54,197 50,447 50,447 46,185 46,185 41,460 41,460 36,585 36,585 31,350 31,350 25,744 25,744 19,894 19,894 13,650 13,650 6,913 6, ,173 $ 832,173 $ $ Total 711, , , , , , , , , , , , , , , , ,825 8,464,346 39

65 BA YTOVVN AREA WATER AUTHORITY TSI-6 CHANGES IN LONG-TERM BONDED DEBT For the Year Ended September 30, 2015 Requirements Bonds Fiscal Year Revenue Outstanding Principal Due Interest Due Bonds Interest Rate Amount of Issue October /01 05/01 Series % $ 13,290,000 $ 5,420,000 $ 620,000 $ 76,345 Series % $ 6,505,000 4,180, ,000 85,806 Series % $ 8,315,000 7,320, ,000 93,550 $ 16,920,000 $ 1,915,000 $ 255,701 Paying Agent's Name & City: Series 2006 Bank of New York Mellon Trust Company, Dallas, Texas Series 2007 Bank of New York Mellon Trust Company, Dallas, Texas Series 2012 Bank of New York Mellon Trust Company, Dallas, Texas Debt service cash and investment balances as of September 30, 2015 $ 2,257,343 Average annual debt service payment (principal & interest) for remaining term of all debt $ 1,034,953 40

66 Requirements Fiscal Year Bonds Interest Due Outstanding 11/01 Total September 2015 $ 76,345 $ 772,690 $ 4,800,000 85, ,612 3,405,000 93, ,100 6,800,000 $ 255,701 $ 2,426,402 $ 15,005,000 41

67 BA YTO-WN AREA WATER AUTHORITY TSI-7 COMPARATIVE SCHEDULE OF REVENUES AND EXPENSES For the Year Ended September 30, Operating Revenues: Sale of treated water: City of Baytown $ 10,621,625 $ 10,249,406 $ 9,816,742 $ 9,448,646 $ 8,808,195 Municipal utility districts 1,510,602 1,451,275 1,349,023 1,281,697 1,117,353 Total Operating Revenues 12,132,227 11,700,681 11, 165,765 10,730,343 9,925,548 Operating Expenses: Raw water purchases and other supplies 3,879,912 3,629,389 3,459,509 3,658,658 2,737,234 Contract personnel costs 925, , , , ,510 Supplies 582,039 Maintenance 663, , , , ,734 Services 710, , , , ,578 Depreciation 1,193,343 1,106,051 1,827, , ,012 Total Operating Expenses 7,373,291 6,676,348 7,477,392 6,764,958 6,278,107 Nonoperating Revenues (Expenses): Interest income 8,968 14,017 10,956 12,951 5,366 Interest expense and fiscal agent fees (511,821) (562,781) (632,008) (623,438) (600,645) Mineral royalties ,158 4,136 11,354 Intergovernmental 116,209 Miscellaneous 63,700 64,938 61,038 62,138 58,100 Total Nonoperating (Expenses) (438,554) (482,912) (557,856) (544,213) (409,616) Income Before Capital Contributions 4,320,382 4,541,421 3,130,517 3,421,172 3,237,825 Capital contributions 2,834,000 Change in Net Position $ 4,320,382 $ 4,541,421 $ 3,130,517 $ 6,255,172 $ 3,237,825 Total Active Wholesale Water Connections

68 % (4.2) 0.5 (3.6) % % (4.8) 0.6 (4.1) % % (5.7) 0.5 (5.0) % % (5.8) 0.6 (5.1) % % (6.1) (4.1) %

69 (This page intentionally left blank.) 44

70 ~~~~~~~~~~~~~~~~~~ BAYTOVVN AREA WATER AUTHORITY TSI-8 BOARD MEMBERS AND ADMINISTRATIVE PERSONNEL For the Year Ended September 30, 2015 Complete Authority Mailing Address: 2401 Market Street, Baytown, Texas, Authority Business Telephone Number: (281) Submission Date of the Most Recent Authority Registration Form (TWC Sections and ): Not Applicable ~~... ~~~~~~~~~~~~~~~ Limit on Fees of Office that a Director May Receive During a Year: Not Applicable Board Members: ~~""'"-"-~~~~~~~~~~~~~~~ Term of Office Fees of Expenses or Elected/ Office Paid Reimbursed Title at Year Date Hired Appointed 09/30/15 09/30/15 End Brenda Bradley-Smith 911/ /16 Appointed NIA NIA President Mike Wilson 911/ /17 Appointed NIA NIA Vice President Wayne Baldwin 911/ /17 Appointed NIA NIA Secretary Brandon Benoit 911/ /16 Appointed NIA NIA Director Frank Fay McKay III 911/ /17 Appointed NIA NIA Director Note: No Board member is disqualified from serving on this Board under the Texas Water Code. The Board members do not receive any form of compensation for their services. Key Administration (contracted through the City of Baytown): Rick Davis NIA NIA $ General Manager Nick Woolery 06/15/10 NIA NIA $ Interim Plant Manager Ignacio Ramirez, Sr NIA NIA $ City Attorney Carl Currie, CPA 04101/11 NIA NIA $ Acting Finance Director Consultants: Belt Harris Pechacek, LLLP 10101/04 NIA $ 6,890 $ Auditor Arcadis U.S., Inc NIA $ 168,282 $ Consulting Engineer 45

71 (This page intentionally left blank.) 46

72 OTHER SUPPLEMENTARY INFORMATION 47

73 BA YTO"WN AREA WATER AUTHORITY ANALYSIS OF CHANGES IN PROPERTY, PLANT, AND EQUIPMENT For the Year Ended September 30, 2015 Deletions Beginning and Ending Balances Additions Reclassifications Balances Physical Facilities: Land $ 264,321 $ 2,613,639 $ $ 2,877,960 Building 1,021,268 1,021,268 Basins 3,273,380 3,273,380 Pump station 1,866,987 1,866,987 Mixing chamber 915, ,356 1,084,986 Distribution system 38,383, ,491 38,624,537 Office furniture and equipment 602, ,809 Machinery and implements 3,633, ,531 4,212,541 Motor vehicles 98,840 24, ,426 Radio and testing equipment 1,930 1,930 Other 966, ,172 Total Physical Facilities 51,027,393 3,628,603 54,655,996 Capitalized interest 1,624,145 1,624,145 Construction in progress 1,290,408 2,037,649 (568,478) 2,759,579 Total Property, Plant, and Equipment $ 53,941,946 $ 5,666,252 $ (568,478) $ 59,039,720 Amounts Provided By: Revenue bond proceeds $ 49,034,657 $ 2,037,649 $ $ 51,072,306 Revenues 4,876,889 3,628,603 (568,478) 7,937,014 Grants 30,400 30,400 Total Amounts Provided $ 53,941,946 $ 5,666,252 $ (568,478) $ 59,039,720 48

74 BAYTO-WN AREA WATER AUTHORITY REVENUE BOND COVERAGE For the Last Ten Years Fiscal Gross Operating Available for Year Revenues Expenses (1) Debt Service Principal Interest Total Coverage 2006 $ 5,939,840 $ 4,228,035 $ 1,711,805 $ 630,000 $ 689,190 $ 1,319, $ 5,664,561 $ 4,102,370 $ 1,562,191 $ 1,255,000 $ 540,741 $ 1,795, $ 6,258,279 $ 4,412,254 $ 1,846,025 $ 1,270,000 $ 732,358 $ 2,002, $ 6,861,038 $ 5,020,144 $ 1,840,894 $ 1,320,000 $ 717,467 $ 2,037, $ 7,414,833 $ 4,831, 717 $ 2,583,116 $ 1,375,000 $ 678,930 $ 2,053, $ 10,116,577 $ 5,408,095 $ 4,708,482 $ 1,425,000 $ 631,364 $ 2,056, $ 10,809,568 $ 5,881,318 $ 4,928,250 $ 1,490,000 $ 676,126 $ 2,166, $ 11,239,917 $ 5,649,987 $ 5,589,930 $ 1,790,000 $ 639,732 $ 2,429, $ 11,780,550 $ 5,570,297 $ 6,210,253 $ 1,860,000 $ 567,132 $ 2,427, $ 12,205,494 $ 6,179,948 $ 6,025,546 $ 1,915,000 $ 511,402 $ 2,426, (1) Total operating expenses do not include depreciation expense. 49

75 (This page intentionally left blank.) 50

76 Required Auditor Disclosure Letter January 7, 2016 To the Board of Directors of the Baytown Area Water Authority of the City of Baytown, Texas: We have audited the financial statements of the business-type activities of the Baytown Area Water Authority (the "Authority") as of and for the year ended September 30, 2015, and have issued our report thereon dated January 7, Professional standards require that we provide the Board of Directors (the "governing body") with the following information related to our audit. I. Our Responsibility Under U.S. Generally Accepted Auditing Standards As stated in our engagement letter dated January 21, 2013, our responsibility, as described by professional standards, is to express opinions about whether the financial statements prepared by management with the governing body's oversight are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles. Our audit of the financial statements does not relieve the governing body or management of its responsibilities. II. Planned Scope and Timing of the Audit We performed the audit according to the planned scope and timing previously communicated to managment in our engagement letter dated January 21, III. Significant Audit Findings 1. Qualitative Aspects of Accounting Practices A. Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the Authority are described in the notes to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during the year. We noted no transactions entered into by the Authority during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Partners Robert Belt, CPA Stephanie E. Harris, CPA Nathan Krupke, CPA Houston Bellville Austin 3210 Bingle Rd., Ste. 300 P.O.Box Congress Ave., Ste Houston, TX Bellville, TX Austin, TX All Offices info@txauditors.com fax := Governmental - Audit Quality Center..,

77 Baytown Area Water Authority Required Auditor Disclosure Letter Page 2 of 3 B. Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements was: Management's estimate of the useful lives of capital assets as based on industry standards relating to capital assets. We evaluated the key factors and assumptions used to develop the useful lives of capital assets in determining that they are reasonable in relation to the financial statements taken as a whole. C. The disclosures in the financial statements are neutral, consistent, and clear. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The most sensitive disclosure affecting the financial statements was: The disclosure of long-term debt in the financial statements is significant to financial statement users because it discloses the Authority's long-term financial obligations. 2. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. 3. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. The attached schedule summarizes both material and immaterial misstatements detected as a result of our audit procedures. 4. Disagreenients with Management For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditors' report. We are pleased to report that no such disagreements arose during the course of our audit. 5. Management Representations We have requested certain representations from management that are included in the management representation letter dated January 7, Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the Authority's financial statements or a determination of the type of auditors' opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants.

78 Baytown Area Water Authority Required Auditor Disclosure Letter Page 3 of 3 7. Other Audit Finding or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the Authority's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. N. Other Matters We applied certain limited procedures to the Required Supplementary Information (RSI), as identified on the table of contents that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI. We were not engaged to report on the transmittal letter, Texas Supplementary Information, and other supplementary information as noted on the table of contents to the annual financial report, which accompanies the financial statements but is not RSI. We did not audit or perform other procedures on this other information and we do not express an opinion or provide any assurance on it. This information is intended solely for the use of the Board of Directors and management and is not intended to be and should not be used by anyone other than these specified parties. cij'at<f!irr1s ~chacek, UJ..P Belt Harris Pechacek, LLLP Certified Public Accountants Houston, Texas

79 Client: Engagement: Period Ending: Trial Balance: Workpaper: Account Baytown Area Water Authority 4.1- BAWA 9/30/15 9/30/ TB Adjusting Journal Entries Report Description W/P Ref Debit Credit Adjusting Journal Entries JE # 1 To amortize premiums and bond refunding Total DEFERRED REVENUE INTEREST ON BONDS UNAMORTIZED ISSUE COSTS 2, , , , , Adjusting Journal Entries JE # 2 To reclass principal payment and reclass principal debt outstanding to debt due in one year REVENUE BONDS PAYABLE REVENUE BONDS PAYABLE REV BONDS PAYABLE-CURRENT INTEREST ON BONDS Total Adjusting Journal Entries JE # 3 To adjust accrued interest payable ACCRUED INTEREST PAYABLE INTEREST ON BONDS Total , ,915, , ,915, ,980, ,980, , , , , of 1

80 BAYTOWN AREA WATER AUTHORITY 3. c. MEETING Meeting Date: 01/20/2016 Subject: Receive the Baytown Area Water Authority's Revenues and Expenditures Report for the Quarter Ending December 31, Prepared For: Carl Currie, Finance Prepared By: Suzi Tallent, Finance Information ITEM Receive the Baytown Area Water Authority's Revenues and Expenditures Report for the Quarter Ending December 31, PREFACE Receive the Baytown Area Water Authority's Revenues and Expenditures Report for the Quarter Ending December 31, RECOMMENDATION Fiscal Impact Fiscal Year: Acct Code: Source of Funds (Operating/Capital/Bonds): Funds Budgeted Y/N: Amount Needed: Fiscal Impact (Additional Information): There is no fiscal impact associated with this item. Q1 FY16 BAWA Financial Report Attachments

81