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Loan Feasibility Study for Raw Water Acquisition and Utilization Page 36 Base water sales are a result of the assessment per ERU of a base water rate that entitles the user to consume up to 2,000 gallons of water per month. Revenue from base water sales have steadily increased over the six year period contained within the table. Water sales consumption figures account for revenues generated from water consumption on a monthly basis in excess of the 2,000 gallons provided to the users within the base water sales rate. This number has fluctuated as a direct result of restrictions put in place by the District. Said restrictions are recapped within Table 7, the District's historical water rate structure. Those restrictions came about as a result of severe drought conditions being experienced within the region which directly impacted the availability of the District's underlying water supply. Conservation practices have continued on the part of the District's constituents as a result of their increased sensitivity to the availability of water coupled with the District's $3.90 per 1,000 gallon assessment for water consumption over 2,000 gallons per month. Water sales consumption income levels are now increasing and beginning to approach those of 2001. In a similar manner, tap fee revenues have fluctuated dramatically. This again is directly attributable to the District's imposition of a tap moratorium in response to its limited water supply brought about by drought conditions. The moratorium was put into affect in April 2002 and continued through April of 2004. Tap fee income has shown recovery, but also reflects reduced demand, in part, due to the $12,000 tap fee now assessed per ERU by the District. Table 10 provides a summary of total income excluding grants and loans. The grants and loans are related to capital construction. Their incorporation is shown in the subsequent total income figure. The large loan in excess of $3,000,000 appearing in 2005 reflects the interim financing secured by the District from the Fremont Bank for acquisition of the Goodwin Ranch and associated water rights. The $4.2 million anticipated loan in 2006 is associated with securing a CWCB loan and implementing a portion of the project needed to convey and store the District's acquired water rights. The CWCB loan budgeted for in 2006 in reality will not occur until July of 2007 based upon CWCB's normal review, approval, and funding allocation process. Total annual income received by the District as recapped within the table shows a reduction in gross income driven by drought conditions and the District's response in the form of both water use restrictions and a tap moratorium. With drought conditions easing and the removal of the water use restrictions and tap moratorium, the overall income level documented in 2005 has once again exceeded that from 2001 and is projected to remain at approximately the same level in 2006. A review of the expenditures made by the District over the same period of time is necessary to establish the overall viability of the District's current water user charge system and related revenue sources. Table 11 presents District expenditures over the same period of time as that of the revenues presented in Table 10. It highlights the major categories of expenditures as presented within the District's audits, year end balance statements, and the 2006 budget. Leonard Rice Engineers, Inc. August 2006 — 1018PEN05 GMS, Inc.