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. . . Penrose Water District November 13-15, 2006 Agenda Item 1 Dc In November 1999, the District established, by resolution, the Penrose Water District Water Activity Enterprise, in order to continue to operate its system as a water activity enterprise, and to receive, spend and administer loans from Department of Local Affairs (DOLA) and U.S. Department of Agriculture - Rural Development (USDA- RD.) The governing body of the Enterprise is the Board of Directors of the District. The Enterprise is authorized to incur debt. Currently, the Enterprise receives $1.20 per household from the District's base water monthly charge of $18, to cover the two loans with DOLA and USDA-RD. In addition, in July 2005, the District, acting by and through the Enterprise, purchased the Goodwin Ranch and water rights with a bridge loan from the Fremont National Bank. The District declares itself an enterprise status for budget purposes, and adopts one overall budget, which includes a separate function for the Enterprise Activity, to clearly separate and define the activities of the Enterprise from those of the District in general. The District's annual financial statement, however, considers the District to have one financial category, that of a busines.s-type activity, and does not provide separate reporting or fund accounting for the Enterprise. CWCB staff, in conjunction with the Attorney General's Office, has reviewed the Resolution creating the Water Activity Enterprise, as well as the District's Financial Statements and budget, and is requesting that the District and Enterprise re-structure the budgets and fund accounting so as to clearly separate District and Enterprise activities for the purposes of our collateral requirement. The Resolution creating the Enterprise states that the District Board of Directors "shall adopt an annual budget for the Enterprise, separate from the District's general fund budget." This approach will be implemented beginning with the District's 2007 budget. Water Riahts The purchased water rights consist of 10/12 interest in the Pleasant Valley Ditch and the water rights. The Pleasant Valley Ditch is decreed for a total of 10 cfs from the Arkansas River. There are two water rights, both decreed for irrigation. The rights are summarized in the table below, which acknowledges a prior transfer of 0.23 cfs out of the ditch. The 1 0/12th interest in the Pleasant Valley Ditch amounts to 8.34 cfs of the 10 cfs total. Pleasant Valley Ditch Water Riqhts Ditch Source Adjudication Appropriation Priority Administration Amount Name Date Date Number (cfs) Pleasant Arkansas 7/2/1906 12/31/1877 194 10227.00000 1 .954 cfs Valley River 2/3/1894 5/31/1883 291 12204.00000 7.816 cfs Ditch Total 9.770 cfs It is estimated that the average annual consumptive use yield of the purchased water right will be approximately 339 acre feet/year. Use of water rights will require the District to change the type of use and place of use of the water rights in Water Court, and to satisfy return flow obligations. The Pleasant Valley Ditch water rights are the subject of the District's pending Water Division 2 case (2006CW012) to change the use (from irrigation to municipal), timing (from summer to year round) and location (from the Goodwin Ranch to Penrose) of the water. The District is working on various strategies to make the required historical return flows back to the Arkansas River. These include developing storage on site at the Goodwin Ranch, developing new storage closer to Penrose, working with others to use existing or develop new storage, and leasing water from others. An augmentation plan may also be developed in the future to leverage the use of this fully consumable water. Page 3 of 8