Combined Financial Statements & Fund Structure

Transcription

1 Combined Financial Statements & Fund Structure The District accounts for its financial activities in conformance with Generally Accepted Accounting Principles (GAAP) as applicable to a government enterprise fund. Activity is accounted for using the accrual method and incorporates the requirements of Government Accounting Standards Board (GASB) Statement No. 34. Because the District s activities are primarily business-like in nature, enterprise fund accounting treatment applies. The District is a special-purpose government, as opposed to a general government, such as a city or town. Under GASB Statement No. 14, The Financial Entity, and GASB Statement No. 39, Determining Whether Certain Organizations are Component Units, the District is a primary government with a single blended component unit, the CAWCD Insurance Company, Inc. (Captive). However, the District has identified a number of financial activities that it wishes to track separately, referred to as funds and accounts. The District is not required to have a legally adopted budget and, therefore, these funds are not subject to appropriation. Both the budget and financial statements include all funds and accounts. FUND GENERAL FUND DESCRIPTION Represents CAWCD s core business, the delivery of Colorado River water to central Arizona through the Central Arizona Project and repayment of reimbursable construction costs and is, by an order of magnitude, the largest fund within the District. CENTRAL ARIZONA GROUNDWATER REPLENISHMENT DISTRICT ACCOUNT AK-CHIN ACCOUNT CAPTIVE INSURANCE FUND REVENUE BOND ACCOUNTS Represents the activities of the Central Arizona Groundwater Replenishment District as authorized by Arizona Revised Statutes (ARS) et. seq. Represents the activities related to a trust fund established by Section 7 of Public Law and ARS to acquire or conserve water to supplement Colorado River supplies. Represents the activities related to the CAWCD Captive Insurance Company, Inc., to provide a self-insurance mechanism for property and casualty insurance to fund claims. Represents the activities related to the District s six revenue bond series to finance CAWCD s share of the construction of New Waddell Dam / 2011 Biennial Budget 4-1

2 Summary of Revenues, Expenses & Changes in Net Assets Revenues Compared to Expenses Millions $350 $300 $250 $200 $150 $100 $50 $ GF Operating GF Nonoperating Other Expenses Expenses exlcude ($21.3 million prior period adjustment Expenses Compared to Revenues Millions $350 $300 $250 $200 $150 $100 $50 $ GF Operating GF Non-Operating Other Revenues Expenses exlcude ($21.3 million prior period adjustment Net Assets $(100) $- $100 $200 $300 $400 $500 $600 $700 Milllions Bond Accounts General Fund CAGRD Other / 2011 Budget

3 Statements of Revenues, Expenses & Changes in Net Assets - Combined (In Thousands) 2007 Actuals 2008 Actuals 2009 Projected 2010 Budget 2011 Budget Operating Revenues Water operations & maintenance charges $ 108,792 $ 97,660 $ 125,157 $ 135,782 $ 143,824 Water service capital charges 46,734 13,815 12,600 9,718 12,602 Power and Basin Development Fund revenues 64,149 49,639 49,655 68,215 67,633 Reimbursements and other operating revenues 14,752 14,943 14,881 17,648 20,890 Total operating revenues 234, , , , ,949 Operating Expenses Salaries and related costs (43,973) (46,386) (48,575) (50,015) (52,544) Pumping power (77,757) (75,439) (85,857) (94,233) (92,864) Transmission and capacity charges (5,857) (6,261) (6,551) (6,456) (6,282) Amortization and depreciation (40,215) (40,997) (41,423) (41,426) (43,457) Other operating expenses Outside services (11,775) (13,959) (15,980) (15,230) (14,098) Materials and supplies (5,829) (6,291) (6,128) (6,325) (6,235) Water for recharge (682) (702) (144) (2,734) (2,305) Other expenses (4,154) (5,617) (164) (593) (1,643) Water inventory adjustment Subtotal (22,440) (26,569) (22,416) (24,594) (23,965) Total operating expenses (190,242) (195,652) (204,822) (216,724) (219,112) Operating Income (loss) 44,185 (19,595) (2,529) 14,640 25,837 Nonoperating revenues (expenses) Property taxes 57,039 65,027 70,553 65,620 57,818 Interest income & other nonoperating revenues 31,738 10,685 10,401 8,350 9,118 Interest expense & other nonoperating expenses* (37,468) (35,802) (10,831) (30,548) (28,968) Total nonoperating revenues (expenses) 51,309 39,910 70,123 43,422 37,968 Change in net assets 95,494 20,315 67,594 58,062 63,805 Net assets at beginning of year 283, , , , ,594 Net assets at end of year $ 378,623 $ 398,938 $ 466,532 $ 524,594 $ 588,399 *Note: 2009 nonoperating expense includes ($21.3) million prior period adjustment 2010 / 2011 Biennial Budget 4-3

4 Statements of Revenues, Expenses & Changes in Net Assets - By Fund & Account (In Thousands) Revenue Captive 2010 General Ak-Chin CAGRD Bond Insurance Budget Elimination Fund Account Account Account Fund Operating Revenues Water operations & maintenance charges $ 135,782 $ (2,871) $ 138,653 $ - $ - $ - $ - Water service capital charges 9,718 (365) 10, Power & Basin Development Fund revenues 68,215-68, Reimbursements & other revenues 17,648 (1,351) 2,943-15, Total revenues 231,363 (4,587) 219,894-15, Operating Expenses Salaries and related costs (50,015) 375 (49,862) - (528) - - Pumping power (94,233) - (94,233) Transmission and capacity charges (6,456) - (6,456) Amortization and depreciation (41,426) - (41,426) Other operating expenses Outside services (15,230) - (14,759) - (326) (9) (136) Materials and supplies (6,325) - (6,325) Overhead 4,955-5,544 - (589) - - Water for recharge (2,734) 3, (5,970) - - Other expenses (5,548) 976 (6,004) - (2) - (518) Water inventory adjustment Subtotal (24,594) 4,212 (21,256) - (6,887) (9) (654) Total expenses (216,724) 4,587 (213,233) - (7,415) (9) (654) Operating Income (loss) 14,640-6,662-7,932 (9) 55 Non-Operating Revenues Property taxes 65,620-65, Interest income and other 8,350 (3,009) 9, ,970 (3,009) 75, Non-Operating Expenses Interest expense and other (30,548) 3,009 (29,821) - - (3,736) - Non-Operating Income (loss) 43,422-45, (2,819) 7 Change in net assets $ 58,062 $ - $ 52,428 $ 260 $ 8,140 $ (2,828) $ 62 Net assets at beginning of year 466,532 (350) 424,050 7,050 31,962 2, Net assets at end of year $ 524,594 $ (350) $ 476,478 $ 7,310 $ 40,102 $ - $ 1, / 2011 Biennial Budget

5 Statements of Revenues, Expenses & Changes in Net Assets - By Fund & Account (In Thousands) Revenue Captive 2011 General Ak-Chin CAGRD Bond Insurance Budget Elimination Fund Account Account Account Fund Operating Revenues Water operations & maintenance charges 143,824 $ (4,254.0) $ 148,078 $ - $ - $ - $ - Water service capital charges 12,602 $ (402.0) $ 13,004 $ - $ - $ - $ - Power & Basin Development Fund revenues 67,633 $ - $ 67,633 $ - $ - $ - $ - Reimbursements & other revenues 20,890 $ (1,369.0) $ 2,895 $ - $ 18,669 $ - $ 695 Total revenues 244,949 $ (6,025.0) $ 231,610 $ - $ 18,669 $ - $ 695 Operating Expenses Salaries and related costs (52,544) $ $ (52,401) $ - $ (518) $ - $ - Pumping power (92,864) $ - $ (92,864) $ - $ - $ - $ - Transmission and capacity charges (6,282) $ - $ (6,282) $ - $ - $ - $ - Amortization and depreciation (43,457) $ - $ (43,257) $ - $ (200) $ - $ - Other operating expenses Outside services (14,098) $ - $ (13,770) $ - $ (188) $ - $ (140) Materials and supplies (6,235) $ - $ (6,235) $ - $ - $ - $ - Overhead 4,124 $ 4,689 $ (565) Water for recharge (2,305) $ 4,656.0 $ - $ - $ (6,961) $ - $ - Other expenses (5,767) $ $ (6,215) $ - $ (3) $ - $ (543) Water inventory adjustment 316 $ 316 $ - $ - $ - $ - Subtotal (23,965) $ 5,650.0 $ (21,215) $ - $ (7,717) $ - $ (683) Total expenses (219,112) $ 6,025.0 $ (216,019) $ - $ (8,435) $ - $ (683) Operating Income (loss) 25,837 $ - $ 15,591 $ - $ 10,234 $ - $ 12 Non-Operating Revenues Property taxes 57,818 $ - $ 57,818 $ - $ - $ - $ - Interest income and other 9,118 $ - $ 8,508 $ 270 $ 333 $ - $ 7 66,936 $ - $ 66,326 $ 270 $ 333 $ - $ 7 Non-Operating Expenses Interest expense and other (28,968) $ - $ (28,968) $ - $ - $ - $ - Non-Operating Income (loss) 37,968 $ - $ 37,358 $ 270 $ 333 $ - $ 7 Change in net assets 63,805 $ - $ 52,949 $ 270 $ 10,567 $ - $ 19 Net assets at beginning of year 524,594 $ (350.0) $ 476,478 $ 7,310 $ 40,102 $ - $ 1,054 Net assets at end of year 588,399 $ (350.0) $ 529,427 $ 7,580 $ 50,669 $ - $ 1, / 2011 Biennial Budget 4-5

6 Balance Sheets - Combined (In Thousands) 2007 Actuals 2008 Actuals 2009 Projected 2010 Projected 2011 Projected ASSETS: Current Assets: Cash and cash equivalents $ 189,268 $ 169,757 $ 210,893 $ 171,463 $ 180,310 Receivables 37,189 33,481 27,426 25,288 22,198 Accrued interest receivable 1,726 2, Due from water customers, less allowance for 11,414 13,264 21,257 19,289 15,499 Other 2,864 2,902 6,098 5,999 6,699 Materials and supplies inventory Water inventory 21,570 23,824 48,853 56,264 61,471 Other 481 1, Total current assets 248, , , , ,616 Noncurrent Assets: Funds held by the federal government 39,456 24,824 24,844 43,515 49,283 Investments 167, , , , ,260 Restricted assets 78,093 78,093 30,689 50,319 50,393 Other assets, less accumulated amortization - 28, Capital assets, net 87,143 96, , , ,104 Agriculture water allocation ,093 78,093 78,093 Permanent service right, net 1,369,731 1,338,997 1,309,280 1,281,595 1,253,910 Bond issuance cost, net Total noncurrent assets 1,741,760 1,744,361 1,717,157 1,770,931 1,779,043 Total Assets $ 1,990,268 $ 1,972,964 $ 2,004,985 $ 2,024,564 $ 2,043,659 LIABILITIES: Current Liabilities: Accounts payable $ 34,685 $ 30,917 $ 32,036 $ 25,351 $ 21,048 Accrued payroll, payroll taxes & other accrued exp. 20,916 22,387 25,293 6,451 7,520 Water operations & capital charges deferred revenue 71,164 70,948 69,750 26,471 23,666 Current liabilities payable from restricted assets, advances to federal government, and other noncurrent assets Accrued interest payable ,822 28,968 Repayment obligation, due within one year ,343 26,343 Contract revenue bonds, due within one year Total current liabilities 126, , , , ,545 Noncurrent Liabilities: Repayment obligation, due after one year 1,371,502 1,346,334 1,321,167 1,294,824 1,256,481 Contract revenue bonds, due after one year, net 27,739 13, Non-Indian agriculture 9(d) debt 78,093 78,093 78,093 78,093 78,093 Other noncurrent liabilities 7,546 11,637 12,114 12,615 13,141 Total noncurrent liabilities 1,484,880 1,449,774 1,411,374 1,385,532 1,347,715 Total Liabilities 1,611,645 1,574,026 1,538,453 1,499,970 1,455,260 NET ASSETS: Investments in capital assets, less related debt 19,155 35,934 57,138 84, ,138 Restricted 52,936 65,860 80,120 90, ,931 Unrestricted 306, , , , ,330 Total Net Assets 378, , , , ,399 Total Liabilities and Net Assets $ 1,990,268 $ 1,972,964 $ 2,004,985 $ 2,024,564 $ 2,043, / 2011 Biennial Budget

7 Balance Sheets - By Fund & Account (In Thousands) 2010 Projected Elimination General Fund Ak-Chin Account CAGRD Account Revenue Bond Accounts Captive Insurance Fund ASSETS: Current Assets: Cash and cash equivalents $ 171,463 $ - $ 151,303 $ - $ 17,414 $ - $ 2,746 Receivables 25,288-20,557-4, Accrued interest receivable Due from water customers, net 19,289-19, Other 5,999-1,268-4, Interfund receivable Water inventory 56,264-45,477-10, Other Total current assets 253, ,955-32,932-2,746 Noncurrent Assets: Funds held by the federal government 43,515-43, Investments 189,780 (350) 190, Other Assets 50,319-35,440 7,310 7, Advances to federal government Capital assets, net 127, ,437-3, Agriculture water allocation 78,093 78, Permanent service right, net 1,281,595-1,281, Bond issuance cost, net Total noncurrent assets 1,770,931 (350) 1,753,210 7,310 10, Total Assets $ 2,024,564 (350) 1,971,165 7,310 43,443-2,996 LIABILITIES: Current Liabilities: Accounts payable $ 25,351 $ - $ 20,068 $ - $ 3,341 $ - $ 1,942 Accrued payroll, payroll taxes & other 6,451-6, Water operations & capital charge 26,471 26,471 deferred revenue Interfund payable Current liabilities payable from restricted assets, advance to federal government, and other Noncurrent assets Accrued interest payable 29,822-29, Repayment obligation, due within 1 yr 26,343-26, Total current liabilities 114, ,155-3,341-1,942 Noncurrent Liabilities: Repayment obligation, due after 1 year 1,294,824-1,294, Non-Indian agriculture 9(d) debt 78,093-78, OM&R obligation Other liabilities 12,615-12, Total noncurrent liabilities 1,385,532-1,385, Total Liabilities 1,499,970-1,494,687-3,341-1,942 NET ASSETS: Investments in capital assets, net 84,865-84, Restricted 90,192-75,313 7,310 7, Unrestricted 349,537 (350) 316,300-32, Total Net Assets 524,594 (350) 476,478 7,310 40,102-1,054 Total Liabilities and Net Assets $ 2,024,564 (350) 1,971,165 7,310 43,443-2, / 2011 Biennial Budget 4-7

8 Balance Sheets - By Fund & Account (In Thousands) 2011 Projected Elimination General Fund Ak-Chin Account CAGRD Account Revenue Bond Accounts Captive Insurance Fund ASSETS: Current Assets: Cash and cash equivalents $ 180,310 $ - $ 162,712 $ - $ 14,809 $ - $ 2,789 Receivables 22,198-16,499-5, Accrued interest receivable Due from water customers, net 15,499-15, Other 6,699-1,000-5, Interfund receivable Water inventory 61,471-46,284-15, Other Total current assets 264, ,132-35,695-2,789 Noncurrent Assets: Funds held by the federal government 49,283-49, Investments 199,260 (350) 199, Other Assets 50,393-34,718 7,580 7, Advances to federal government Capital assets, net 148, ,052-10, Agriculture water allocation 78,093-78, Permanent service right, net 1,253,910-1,253, Bond issuance cost, net Total noncurrent assets 1,779,043 (350) 1,753,666 7,580 17, Total Assets $ 2,043,659 (350) 1,979,798 7,580 53,592-3,039 LIABILITIES: Current Liabilities: Accounts payable $ 21,048 $ - $ 16,159 $ - $ 2,923 $ - $ 1,966 Accrued payroll, payroll taxes & other 7,520-7, Water operations & capital charge 23,666 23,666 deferred revenue Interfund payable Current liabilities payable from restricted assets, advance to federal government, and other Noncurrent assets Accrued interest payable 28,968-28, Repayment obligation, due within 1 yr 26,343-26, Total current liabilities 107, ,656-2,923-1,966 Noncurrent Liabilities: Repayment obligation, due after 1 year 1,256,481-1,256, Non-Indian agriculture 9(d) debt 78,093-78, OM&R obligation Other liabilities 13,141-13, Total noncurrent liabilities 1,347,715-1,347, Total Liabilities 1,455,260-1,450,371-2,923-1,966 NET ASSETS: Investments in capital assets, net 109, , Restricted 100,931-85,255 7,580 7, Unrestricted 378,330 (350) 335,034-42, Total Net Assets 588,399 (350) 529,427 7,580 50,669-1,073 Total Liabilities and Net Assets $ 2,043,659 (350) 1,979,798 7,580 53,592-3, / 2011 Biennial Budget

9 General Fund The General Fund has the largest share of the District s financial activities. The combined financial statement presentation consolidates the General Fund revenues and expenses into operating and nonoperating categories. For management reporting purposes, the General Fund is further separated to provide visibility to extraordinary maintenance and operating projects and to underground storage project (recharge) Operations and Maintenance (O&M ) activity. The District has several sources of revenues used to fund expenses for certain activities. As shown on the following diagram, power and BDF revenues and capital charges, along with property taxes and interest income, provide the funds to meet the District s annual federal debt service. Water delivery charges, reimbursements, other revenues and, to the extent needed, property taxes and interest income, pay for costs associated with delivering water (fixed OM&R and pumping power), recharge O&M, and capital expenditures. General Fund Sources and Uses of Funds Sources of Funds Uses of Funds Power & Basin Development Fund (BDF) Revenues (ARC only) Repayment Capital Charges OM&R Property Taxes & Interest Reserves Water Delivery Charges Capital - Big R Excludes recharge O&M and excludes Misc revenues/expenses 2010 / 2011 Biennial Budget 4-9

10 Revenues Revenues consist of water O&M and capital charges, power and other Basin Development Fund (BDF) revenues, property taxes, interest income, and reimbursements and other revenues. Water O&M charges are the General Fund s most significant revenue source, accounting for total revenue of 46.9% for 2010 and 49.7% for Power and BDF revenues represent the second largest category, followed by property taxes (which includes both the general ad valorem tax and the water storage tax), interest income, capital charges, and other revenue. Gener al F und Revenues ($ Million) Gener al F und Revenues ($ Million) Interest & Other 4.4% Water O&M 46.9% T axes 22.2% Pow er 23.1% Capit al 3.4% Interest & Other 3.8% T axes 19.4% Wat er O&M 49.7% Pow er 22.7% Capital 4.4% General F und Revenues $350 $300 $250 $288.6 $227.9 $267.7 $295.5 $297.9 Millions $200 $150 $100 $50 $ Water operations & maintenance charges Water serv ice capital charges Pow er & Basin Dev elopment F und rev enues Property T axes Interest & Other / 2011 Biennial Budget

11 EXPLANATION OF CHANGES Total revenues for 2010 are projected to increase $27.8 million from 2009 and 2011 revenues are projected to increase $2.4 million from The most significant change is in the Power and BDF revenues due to the previously discussed ARC payments from SRP. The following discussion further explains the increases and decreases to the 2010 and 2011 revenue budget. (Millions) vs vs. 11 Projected Budget Budget incr/(decr) incr/(decr) Water O&M charges $ $ $ $ 9.4 $ 9.4 Capital charges (3.2) 2.9 Power & BDF revenues (0.6) Property taxes (5.0) (7.8) Interest income (1.5) Other revenue Total $ $ $ $ 27.8 $ 2.4 Water O&M Charges As discussed in the Executive Summary, water O&M charges are directly linked to the amount and type of water that is delivered and the rates that are charged. It is anticipated that both 2010 and 2011 will be normal delivery years with water deliveries of 1.54 million acre-feet and 1.56 million acre-feet, respectively. Water deliveries for 2009 are projected to be 1.61 million acre-feet. Revenues are approximately $12 million higher in 2010 and $6 million higher in 2011 in connection with the elimination of the incentive recharge rate beginning in These amounts are offset by slightly lower underground storage volumes and the AWBA amount of water storage tax that the AWBA uses to pay for its water (revenue is recorded upon receipt of the water storage tax and consequently is not recorded if the tax is used to pay for water deliveries). AWBA will use between $15-$16 million in 2010 and 2011 for water purchases as compared to $7.4 million in The balance of the water O&M variance is due to a slight increase in the water deliveries in 2011 and an increase in the firm O&M rates for 2010 and advisory rates for Rates for 2011 will not be firm until the next rate setting cycle in mid / 2011 Biennial Budget 4-11

12 Capital Charges The capital charge rate for M&I customers drops from $18 an acre-foot in 2009 to $15 an acre-foot in 2010 to $12 an acre-foot in The decrease in 2010 capital revenue is primarily due to this decrease. The increase in 2011 is due to elimination of the incentive recharge rate, which is transitioning to the M&I rate in 2010 and to Excess Water rate in 2011 with the elimination of Energy Rate 2 in Power & Basin Development Fund Revenues Power and other BDF revenues fluctuate each year due to timing of net revenues and expenses for the Navajo Generating Station (NGS) activity; however, over time revenues should offset expenses. In addition to the net NGS activity, BDF revenues will rise and fall based on the decision to sell sulfur dioxide (SO 2 ) credits or land excess for Project needs. Each of these decisions are evaluated based on the amount of funds projected to be in the BDF each year and that are available for the District to meet its annual repayment obligation. For 2010, power and BDF revenues are significantly greater than 2009 primarily due to complete redemption, defeasement and discharge of CAWCD s outstanding revenue bonds and anticipated sale of SO 2 credits. As a result, $25.2 million in power revenues (additional rate component) previously pledged toward the repayment of the bonds are now considered a revenue of the General Fund and deposited into a restricted reserve fund for the major repair and replacement of CAP facilities (as specified in the Settlement Stipulation). Revenues from the sale of power are based on take-or-pay contracts and will not fluctuate. The major fluctuation affecting this category of revenue is shown on the following table: (Millions) vs vs. 11 Projected Budget Budget incr/(decr) incr/(decr) Power sales: Additional rate component $ 19.2 $ 25.2 $ 18.9 $ 6.0 $ (6.3) SRP consideration fee Hoover mil revenue Parker-Davis Project Net NGS activity (7.3) 0.2 (2.0) 7.5 (2.2) Sale of sulfur dioxide credits Transmission revenues (0.8) 0.7 Land sales (0.5) Other revenue (0.4) (0.1) Total $ 43.7 $ 68.2 $ 67.6 $ 24.5 $ (0.6) / 2011 Biennial Budget

13 Property Taxes CAWCD assesses two ad valorem taxes general ad valorem tax and a water storage tax. In June 2007, the Board reduced the general ad valorem tax rate from $0.08 to $0.06 per $100 of assessed valuation for the tax year 2007 / 2008, leaving the water storage tax at $0.04 per $100 of assessed valuation. These rates have been held through the 2008/2009 and 2009/2010 tax year and are assumed to be held for the current budget period. The Board establishes the tax rates each June for the following tax year and may change the rates as it deems appropriate. Property values increased significantly from 2003 through 2008 and, at a constant rate, the District saw increased ad valorem revenue from the 2005 through 2009 years due to the approximate two-year lag between property value changes and ad valorem tax collection. With the bursting of the property value bubble in 2008 through 2009, at the current rates, the District s ad valorem tax revenue will be decreasing significantly over the budget period. Calendar Year General Ad Valorem Tax (Millions) Water Storage Ad Valorem Tax (Millions) Total Revenue (Millions) Year-over-Year Increase (Millions) 2007 $36.0 $21.0 $57.0 $ (5.0) (7.8) The Board approved the retention of the Water Storage tax rather than transferring it to the Arizona Water Storage Fund to be used by AWBA. These funds are placed in a separate reserve fund to be used for operating costs associated with the delivery of water to meet M&I firming requirements of the AWBA. For 2010 and 2011, the water delivery revenue budget was reduced $15.6 million and $15.3 million, respectively, to reflect the use of water storage tax revenues collected for this purpose. Interest Income At the end of 2010, the bond fund will be closed out and the remaining balance will be transferred to the General Fund. While the approximate $3 million transferred balance will not be interest income to the District, it will be reflected as such in the General Fund with offsetting interest expense in the bond fund. Eliminations zero out the effects at a District consolidated level. Besides this impact, interest income, including fair market value adjustments, had decreased significantly from prior years due to the instability in the financial markets. It is expected that interest rates will slowly increase over the next few years. Other Revenue Other revenues are anticipated to remain stable for 2010 to / 2011 Biennial Budget 4-13

14 Expenses Expenses consist of pumping power, salaries and related costs, amortization and depreciation, interest, and other operating costs. Pumping power is the District s most significant expense, accounting for 38.7% of the 2010 expenses and 37.9% of the 2011 expenses. Salaries and related costs represent the second largest category, followed by amortization and depreciation, interest expense, and other costs. Gener al F und Expenses ($ Million) Gener al F und Expenses ($ Million) Sa la rie s 20.5% Powe r 38.7% Inte re st 12.3% Amort/De p 17.0% Othe r 11.4% Sa la rie s 21.4% Powe r 37.9% Inte re st 11.9% Amort/De p 17.7% Othe r 11.4% General F und Expenses $300 $250 $219.6 $227.4 $234.5 $243.1 $245.1 Millions $200 $150 $100 $50 $ * Pumping powe r Sa la rie s a nd re la te d costs Amortiza tion/de pre cia tion Int e xp othe r *excludes ($21.3) million prior period adjustment / 2011 Biennial Budget

15 Explanation of Changes Excluding pumping power, there are three major factors that affect expenses: (1) an aging infrastructure is resulting in higher maintenance costs and increased depreciation due to greater capital spending, exacerbated by the fact that the District is delivering its full Colorado River apportionment, reducing the time available for maintenance, (2) power costs are forecasted to increase significantly from the unusually low 2009 levels, and (3) the District is experiencing significant legislative issues that require additional personnel and expense in an attempt to mitigate the impact on the District and our customers. The following discussion further explains the increases and decreases to the 2010 and 2011 expense budget. (Millions) vs vs. 11 Projected Budget Budget incr/(decr) incr/(decr) Salaries and related costs $ 48.0 $ 49.9 $ 52.4 $ 1.9 $ 2.5 Pumping power $ 8.3 $ (1.3) Amortization/Depreciation $ - $ 1.9 Other Expenses $ (0.8) $ (0.3) Interest expense $ (0.8) $ (0.8) Total expenses Prior Period Adjustment ($21.3) Pumping Power Three factors influence pumping power costs: (1) the amount of power needed to divert water from the Colorado River; (2) the gas index that affects additional energy purchases (over-threshold) and are driven by market conditions; and, (3) the increase or decrease in water inventory in both Lake Pleasant and water credits. The following graphs on this page and the next Energy Purchases page show the gigawatt hours 2011 (GWH) of energy needed from 2007 to 2011 and the average 2010 cost of energy in total and by category. For graphical purposes 2009 only, the threshold energy rate 2008 includes Waddell, Hoover and Navajo ,000 2,000 3,000 GWH Wa dde ll & Othe r Hoove r Na va jo Above Thre shold 2010 / 2011 Biennial Budget 4-15

16 The cost of over-threshold energy declined from $56.18 to $36.69 per GWH from 2007 to 2009, but is expected to rise in 2010 to $ Other than in minor amounts, over-threshold will not be necessary starting in 2011 with the availability of the full allocation of NGS power. Although purchases in this category account for about 15-16% of total energy purchased each year, it makes up about 25% to 32% of the power costs because it is the District s highest priced energy source. $60 E ner g y Rates $ / M W H $40 $20 $ T otal A v erage T hreshold Ov er-t hreshold In 2010, energy costs and the total average energy rate are expected to increase significantly from 2009, resulting in higher pumping energy costs. In general, only minor changes are expected from Lake Pleasant inventory during the period. Storage in Lake Pleasant is accounted for as water inventory on the balance sheet. If water is released from the Lake to meet demands, pumping power costs increase and water inventory decreases. However, if more water is stored in the Lake, water inventory will increase on the balance sheet and pumping power costs will decrease. In addition, beginning in 2010, CAWCD will begin pumping water from Pinal County recharge sites and store an equivalent amount in Phoenix sites. That will have a minor impact on pumping costs due to the difference in the power portion of the water inventory costs and the current costs. Energy Costs (Millions) Navajo $ 46.6 $ 49.5 $ 65.0 $ 71.0 $ 88.7 Hoover B Subtotal Additional energy Recovery energy Total pumping energy Lake Pleasant adjustment 3.6 (0.7) (3.9) (0.6) 0.6 Other Net pumping power costs $ 77.8 $ 75.4 $ 85.9 $ 94.2 $ / 2011 Biennial Budget

17 Salaries and Related Costs Salaries and related costs are anticipated to increase $1.9 million in 2010 and $2.5 million in 2011 for the General Fund. Full time equivalent (FTE) position increases, cost of living increases, and marketdriven costs associated with health insurance are the primary factors that cause salaries and related costs to increase. The amount of labor spent on capital projects will also impact the General Fund expenses as the labor is capitalized as part of the project rather than being expensed. Historically, CAWCD has maintained ten vacant positions on average throughout a budget year due to normal market conditions. To reflect our history and for comparison purposes, CAWCD has included a vacancy and salary savings equivalent adjustment of ten positions in the 2010 and 2011 budget. Although positions have been filled quicker in 2009 due to higher than normal unemployment, we do not expect this trend to continue and CAWCD will actively manage vacancy savings. The total expense for both salaries and related costs for the operating and capital budgets combined is based on the number of filled positions Salaries & Related Costs General Fund $46.2 $43.9 $49.9 $48.0 $52.4 $35 $40 $45 $50 $55 Millions FTE Staf f ing T r ends & For ec ast Budget Filled Positions Amortization and Depreciation The permanent service right (PSR) represents the District s right to operate and maintain the CAP system. Amortization of the PSR is $29.7 million for 2009 and decreases by $2.0 million to $27.7 million for 2010 and Depreciation expense is anticipated to increase $2.0 million in 2010 and $1.9 million in 2011 due to increased capital expenditures needed to maintain an aging infrastructure and additions to capital equipment, buildings, and structures / 2011 Biennial Budget 4-17

18 Interest Expense Interest expense will decrease $0.8 million in 2010 and 2011 reflecting that the District is paying down its debt to the federal government for the repayment obligation. Other Expenses This category includes power transmission and Hoover capacity charges, outside services, materials and supplies, and other costs (travel, insurance, overhead allocation, etc.). Other expenses are anticipated to remain fairly flat in 2010 and Almost all of the year-over-year change is associated with allocation of overhead to capital projects and CAGRD vs vs. 11 ( M illions) Proje cte d Budge t Budge t incr/( de cr) incr/(de cr) Transmission & capacity charges $ 6.6 $ 6.5 $ 6.3 $ (0.1) $ (0.2) Outside services (0.7) (1.0) Materials & supplies (0.1) Overhead (5.4) (5.5) (4.7) (0.1) 0.8 Other (0.1) 0.2 Total $ 28.6 $ 27.8 $ 27.5 $ (0.8) $ (0.3) Change in Net Assets Net assets are anticipated to increase $52.4 million and $52.9 million in 2010 and 2011, respectively. As previously discussed, the majority of this increase is due to the receipt of the ARC revenue payments into the general fund. Revenues are expected to increase $27.8 million in 2010 and $2.4 million in Expenses are increasing in 2010 by $8.6 million and $2.0 million in 2011 primarily due to the increase in the cost of pumping power. The overall effect results in an increase in net assets for both 2010 and ( M illions) vs vs. 11 Proje c te d Budge t Budge t inc r/( de c r) inc r/( de c r) Revenues $ $ $ $ 27.8 $ 2.4 Expenses (234.5) (243.1) (245.1) (8.6) (2.0) Prior period adjustment 21.3 (21.3) - Change in net assets (2.1) 0.5 Net assets at beginning of period Net assets at end of period $ $ $ $ 52.4 $ 52.9 minor differences due to rounding / 2011 Biennial Budget

19 General Fund (In Thousands) Actuals Actuals Projected Budget Budget Water deliveries (acre-feet) 1, , , , ,555.4 Operating Revenues Water operations & maintenance charges $ 111,932.6 $ 101,682.7 $ 129,319.8 $ 138,652.7 $ 148,077.7 Water service capital charges 46, , , , ,003.8 Power & Basin Development Fund revenues 40, , , , ,633.3 Reimbursements and other revenues 3, , , , ,895.1 Total operating revenues 203, , , , ,609.9 Operating Expenses Salaries and related costs (43,881.2) (46,167.0) (47,977.4) (49,862.0) (52,401.4) Pumping power (77,757.0) (75,439.5) (85,857.3) (94,232.8) (92,864.1) Transmission and capacity charges (5,857.3) (6,260.7) (6,550.9) (6,457.4) (6,282.1) Amortization and depreciation (40,215.3) (40,996.9) (41,422.8) (41,425.6) (43,257.4) Other operating expenses Outside services (11,518.5) (13,551.6) (15,483.5) (14,758.8) (13,770.4) Materials and supplies (5,829.2) (6,291.4) (6,127.8) (6,324.7) (6,235.4) Overhead 3, , , , ,689.3 Other expenses (5,377.3) (9,408.2) (5,881.6) (6,004.3) (6,213.6) Water inventory adjustment Subtotal (19,586.2) (25,361.1) (22,060.4) (21,255.2) (21,214.1) Total operating expenses (187,297.0) (194,225.2) (203,868.8) (213,233.0) (216,019.1) Operating Income (loss) 16,292.1 (39,475.5) (14,763.1) 6, ,590.8 Nonoperating revenues Property taxes General ad valorem tax 36, , , , ,954.6 Water storage tax 21, , , , ,863.5 Subtotal 57, , , , ,818.1 Interest income and other revenues 27, , , , ,508.0 Total nonoperating revenues 84, , , , ,326.1 Nonoperating expenses Interest expense and other expenses (32,335.7) (33,160.4) (9,293.2) (29,821.0) (28,968.0) Total nonoperating expenses* (32,335.7) (33,160.4) (9,293.2) (29,821.0) (28,968.0) Total nonoperating revenues (expenses) 52, , , , ,358.1 Change in net assets 68, , , ,948.9 Net assets at beginning of year 300, , , , ,478.1 Net assets at end of year $ 369,089.8 $ 369,555.6 $ 424,050.3 $ 476,478.1 $ 529,427.0 *Note: 2009 nonoperating expense includes ($21.3) million prior period adjustment 2010 / 2011 Biennial Budget 4-19

20 Underground Storage Projects O&M (Included in General Fund) (In Thousands) 2007 Actuals 2008 Actuals 2009 Projected 2010 Budget 2011 Budget Water deliveries (acre-feet) Revenues Reimbursements and other revenues $ 2,520.3 $ 2,019.0 $ 1,973.1 $ 1,865.1 $ 1,950.9 Total revenues 2, , , , ,950.9 Expenses Salaries and related costs (413.7) (353.5) (456.3) (242.1) (247.9) Other operating expenses Outside services (285.4) (547.6) (342.1) (561.8) (596.8) Materials and supplies (47.0) (85.2) (30.4) (39.6) (10.4) Other expenses (838.1) (1,100.8) (778.9) (780.3) (824.7) Water inventory adjustment Subtotal (1,170.5) (1,733.6) (1,151.4) (1,334.6) (1,399.9) Total expenses (1,584.2) (2,087.1) (1,607.7) (1,576.8) (1,647.8) Change in net assets $ $ (68.1) $ $ $ Expense Summary Agua Fria $ (117.3) $ (197.9) $ (198.6) $ (136.8) $ (138.7) Avra Valley (123.9) (110.7) (88.3) (110.6) (115.2) Hieroglyphic Mountains (294.7) (354.7) (289.2) (299.7) (306.3) Lower Santa Cruz (447.4) (532.5) (362.5) (538.6) (579.5) Pima Mine Road (287.0) (423.2) (299.8) (213.8) (151.0) Superstition Mountain (75.5) Water Inventory Adjustment Tonopah (313.9) (468.1) (369.4) (324.4) (313.7) Total expenses $ (1,584.2) $ (2,087.1) $ (1,607.8) $ (1,576.8) $ (1,647.8) / 2011 Biennial Budget

21 Extraordinary Maintenance & Operating Projects (Included in General Fund) (In Thousands) 2007 Actuals 2008 Actuals 2009 Projected 2010 Budget 2011 Budget Expenses Salaries and related costs $ (272.1) $ (174.0) $ (133.5) $ - - Other operating expenses - Outside services (941.2) (1,607.5) (1,936.1) - - Materials and supplies (13.1) (37.7) Other costs (274.1) (325.9) (139.6) - - Subtotal (1,228.4) (1,971.1) (2,075.7) - - Total expenses $ (1,500.5) $ (2,145.1) $ (2,209.2) $ - $ - Expense Summary Black Mountain pipeline (231.4) Black Mountain Switchgear - (23.1) Mark Wilmer Pumping Plant discharge (190.0) (1.9) line recoating Jackrabbit Wash Siphon repairs (903.6) (1.3) Quagga Mussels $ (26.3) (221.6) $ - $ - $ - Raise canal lining - Pools 23 and 24 (120.4) (1,837.9) (2,209.2) - - Recreation trails (9.2) (59.3) Subsidence investigation (19.6) Total expenses $ (1,500.5) $ (2,145.1) $ (2,209.2) $ - $ / 2011 Biennial Budget 4-21

22 Central Arizona Groundwater Replenishment District Account In 1993, the Arizona legislature provided CAWCD with replenishment authority designed to help water providers and landowners comply with the State's Assured Water Supply Rules (AWS Rules) and to meet the objectives of the 1980 Groundwater Management Act. The replenishment authority is commonly referred to as the Central Arizona Groundwater Replenishment District (CAGRD). The AWS Rules are designed to protect groundwater supplies within each Active Management Area (AMA) and to ensure that people purchasing or leasing subdivided land within an AMA have a water supply of adequate quality and quantity. Membership in the CAGRD is voluntary. Any city, town, water company, subdivision or homeowner s association located in Pima, Pinal, or Maricopa Counties may join the CAGRD. The CAGRD is comprised of two types of members: Member Service Areas (MSA) The service area of a city, town, or private water company, including any additions to or extensions of the service area; and Member Lands (ML) An individual subdivision with a defined legal description. CAGRD members are located in the Pinal, Tucson, and Phoenix AMAs established by Arizona s 1980 Groundwater Code (Code). AMAs are areas that have experienced significant groundwater depletion. The CAGRD must recharge (or replenish) the amount of groundwater used by its members that exceed the pumping limitations imposed by the AWS Rules. This category of water is referred to as excess groundwater. Plan of Operation CAGRD is currently operating under a plan that was determined by the Arizona Department of Water Resources (ADWR) to be consistent with the management goals of Phoenix, Pinal and Tucson AMAs in October Statutes require CAGRD to prepare and submit a new plan to ADWR every ten years. The current plan is effective through December 31, / 2011 Biennial Budget 4-23

23 Replenishment Obligation The first members were enrolled in the CAGRD in As shown on the following graph, the number of enrolled ML subdivisions has grown to more than 1,100 through 2009 with nearly 260,000 homes falling within the ML boundaries. As indicated in the graph, ML enrollment over the past two years has slowed considerably due to the current economic environment. For purposes of developing the budget, it was assumed there will be a modest increase in the rate of ML enrollments during 2010 and The number of enrolled MSAs currently stands at 24, with two pending enrollment applications (Town of Buckeye and Water Utility of Greater Tonopah). As the number of MLs and MSAs grows, CAGRD s replenishment obligation will also grow. The CAGRD incurs three different kinds of replenishment obligations: (1) Parcel replenishment obligations, which result from excess groundwater deliveries to individual parcels of ML, (2) Service area replenishment obligations, which result from excess groundwater deliveries within an MSA, and (3) Contract replenishment obligations which will result from contracts executed between CAWCD and the water providers serving MSAs. Under such contracts, CAGRD would perform Advance Replenishment for the contracting MSA. Currently, CAGRD has only one active contract replenishment obligation agreement in place (City of Scottsdale) CAGRD Member Lands Cumulative Gr owth 300, , 000 No. of Members , , , , 000 No. of Homes 0 '95 '97 '99 '01 '03 '05 '07 09 Proj ML Homes / 2011 Biennial Budget

24 Revenues The CAGRD was established with the requirement that all of the costs of the CAGRD be paid by its members. CAGRD has two primary sources of revenues: Annual Replenishment Assessments and Up-Front Fees. In addition, CAGRD accrues interest on the revenue reserves established by these two sources. Annual Replenishment Assessments/Taxes are collected from CAGRD members based on the volume of excess groundwater they used in the previous year. In accordance with the existing policy, the CAWCD Board adopts a replenishment assessment rate schedule after an extensive public ratesetting process. CAGRD s assessment rates are established by individual AMAs and consist of the following four components: (a) water and replenishment, (b) administrative, (c) infrastructure and water rights, and (d) replenishment reserve. Each assessment component is specifically assigned to costs incurred by CAGRD. The water and replenishment component is designed to cover water and replenishment costs that will be incurred by CAGRD in meeting the replenishment obligations resulting from its members actual use of excess groundwater. The administrative component pays for CAGRD s operating costs, including wages, benefits, and overhead. A portion of the administrative component also supports the CAGRD conservation program adopted by the Board in This budget assumes that the administrative component is held at $33/acre-foot instead of reduced as indicated in the advisory period of the rate schedule. This rate is needed to cover the CAGRD administrative costs due to the lower replenishment obligations resulting from the slowdown in the housing market. The infrastructure and water rights component provides a capital reserve fund for each AMA to (a) purchase long-term rights to water as opportunities arise, and (b) construct additional infrastructure (e.g., replenishment facilities) as the need arises in the future. The replenishment reserve component is designed to cover water and replenishment costs associated with establishing and maintaining a replenishment reserve of long-term storage credits in each AMA, as required by statutes enacted in Cost / AF $400 $350 $300 $250 $200 $150 $100 $50 $- $41 $101 $143 CAGRD Assessment Rates by AMA $38 $101 $107 $46 $101 $112 $153 $154 $112 $117 $112 $164 $33 $33 $33 $33 $33 $33 Phoenix ($318/A F ) 2009/10 Firm Ra te s 2010/11 Adjuste d Advisory Rates Pinal ($279/A F ) T ucson ($333/A F ) $49 Phoenix ($348/A F ) $45 Pinal ($307/A F ) $54 T ucson ($363/A F ) Adminis trative Infras tructure & W ater Rights W ater & Replenis hment Replenis hment Res erve 2010 / 2011 Biennial Budget 4-25

25 Up-Front Fees are generally collected from CAGRD members before they begin using excess groundwater. These fees consist of (a) enrollment fees, (b) activation fees, and (c) replenishment reserve fees. The fees are established by the Board and are published with the replenishment assessment rate schedule. An enrollment fee is collected from applicants who propose to enroll a subdivision as an ML of the CAGRD. The fee is based on the number of housing units in the proposed subdivision and will be used in conjunction with the infrastructure and water rights component to purchase water rights and develop infrastructure. A small portion ($2 per housing unit) of the ML enrollment fee also supports CAGRD s conservation program. Like enrollment fees, activation fees are collected on a per housingunit basis and will be used to purchase water rights and develop infrastructure. However, activation fees are collected on behalf of both ML and MSA subdivisions after they are enrolled but before the subdivision homes are actually constructed. Replenishment reserve fees are used in conjunction with the replenishment reserve rate component to support CAGRD s replenishment reserve program. For MLs, the replenishment reserve fee is collected along with the activation fee and is based on the subdivision s projected build-out excess groundwater demand. For MSAs, the replenishment reserve fee is collected with the annual replenishment tax and is based on the increase in excess groundwater delivered within the service area during the previous year. Expenses CAGRD has ongoing operating (staff) expenses and costs related to administration, planning, membership enrollment, annual reporting, and satisfaction of annual replenishment obligations. The largest expenses incurred by CAGRD result from purchasing and recharging water to meet existing obligations and acquisition of water rights to insure satisfaction of future replenishment obligations. CAGRD s current Plan of Operation outlines a long-term water rights acquisition program that identifies sources of water rights to be acquired and a general timeframe for the acquisition. In accordance with this plan, CAGRD has budgeted for more than $12 million in 2010 and 2011 related to acquisition of effluent supplies that can be used to meet replenishment obligations in both the near-term and long-term. These water rights will be recorded and amortized as intangible assets in accordance with GASB 51. The CAGRD replenishment assessment rates are established based on the actual volume of excess groundwater used by CAGRD members in the previous year, causing collections to lag pumping activity as much as 2-1/3 years. CAGRD has up to three years to actually replenish water, so the actual replenishment may lag as well, and may be accomplished earlier or later than when collections are received. This point is illustrated on the following diagram using groundwater pumping in calendar year / 2011 Biennial Budget

26 Member Service Area Replenishment Tax Collections 2008 payment 2009 payment 2010 Payment CY 2008 CY 2009 CY 2010 CY 2011 Groundwater Pumped 1 st payment for nd payment for st payment for nd payment for st payment for 2010 Member Lands County Replenishment Assessment Tax Collections Change in Net Assets Net assets are anticipated to increase $8.1 million in 2010 and $10.6 million in The primary reason for this increase is the continued generation of revenues and establishment of capital reserve funds to support the long-term water rights acquisition program identified in CAGRD s current Plan of Operation. In addition, CAGRD is collecting revenues and accruing long-term storage credits in the establishment of its replenishment reserve, which also increases CAGRD s net assets. In effect, CAGRD is doing just what it should be doing, that is, accumulating revenue and storage credit reserves and building a portfolio of water rights so that it can meet all of its future replenishment obligations. (Millions) vs vs. 11 Proje cte d Budge t Budge t incr/( de cr) incr/( de cr) Revenues $ 13.1 $ 15.5 $ 19.0 $ 2.4 $ 3.5 Expenses (6.8) (7.4) (8.4) (0.6) (1.0) Change in net assets Net assets at beginning of period Net assets at end of period $ 32.0 $ 40.1 $ 50.7 $ 8.1 $ / 2011 Biennial Budget 4-27

27 Bonding Legislation CAWCD s enabling legislation permits CAWCD to issue revenue bonds with a maximum aggregate outstanding principal balance of no more than $250 million. However, current law prohibits CAWCD from pledging any revenues from replenishment assessments/taxes to revenue bond repayment. By formal action, the CAWCD Board has directed staff to seek legislation authorizing CAWCD to issue revenue bonds for the acquisition of water rights and development of infrastructure necessary for CAWCD to perform its replenishment obligations. While CAWCD is pursuing authority for this legislation, the 2010/2011 budget does not include any revenues or costs associated with the legislation. Revenue bonding authority would be an additional tool available to CAWCD to maximize efficiency in operating the CAGRD and stabilize rates for its members. CAWCD already has broad authority to collect all revenues necessary from its members (through fees, assessments, and taxes) to meet its replenishment obligations. Bonding authority would allow the costs to be more equitably distributed among the members over a longer period of time, thus providing rate stability. A primary component of the proposed legislation is a new authority to collect an annual membership fee from all CAGRD members regardless of their use of excess groundwater. Authority to collect this fee provides an assured revenue stream to support a successful and affordable bond program. The fee is equitably distributed among Member Lands and Member Service Areas based on their respective projected reliance on CAGRD replenishment. The language in the state legislation has been drafted to expressly prohibit the use of any revenues other than replenishment revenues from CAGRD members for repayment of the bonds issued for replenishment purposes / 2011 Biennial Budget