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Loan Feasibility Study for Raw Water Acquisition and Utilization page I 1. EXECUTIVE SUMMARY Penrose Water District (the District) is a Colorado Special District that was formed in 1967 to supply a safe and reliable drinking water supply to the citizens in and around the unincorporated community of Penrose, located in Fremont County. Located just 35 miles southwest of Colorado Springs, 15 miles east of Canon City, and 20 miles west of Pueblo, Penrose is a rapidly developing bedroom community. Approximately 4,000 people currently live in Penrose proper, and the population in the District is slightly less. By 2040, the projected population in the District is expected to be approximately 8,000 residents. The District currently relies on a lease with Beaver Park Irrigation Company [also know as Beaver Park Water, Inc. (BPW)] for raw water to satisfy its municipal demand. In 2002 and continuing into 2003, drought conditions resulted in a reduced availability of water from BPW to the District. As a result of the drought, the District instituted outside watering restrictions, disallowing all outside use except for watering of livestock and protection of human health and welfare. The risk of running out of its raw water supply was so great in 2002 and 2003, the District favorably discussed with the Portland Water Treatment Plant (WTP) a plan whereby the Portland WTP would sell treated water to the District and the District would transport that water into the District's system through a temporary pipeline running the approximate two miles from the Portland WTP to the District. In addition to the unreliability of the leased supply, the maximum amount of water available for lease through BPW is not sufficient to supply the District's future municipal demand in an average year. The District's goal is to secure a loan from the Colorado Water Conservation Board (CWCB) in the amount of $8,757,000 to finance the purchase of 10 /12th of the Pleasant Valley Ditch water rights and to construct a system to divert and convey the historical consumptive use component of the Pleasant Valley Ditch water right to the District for utilization within its system. The system will consist of a well field containing seven (7) ground water wells located along the Arkansas River. The historical consumptive use component of the Pleasant Valley Ditch water will be diverted through the well field and transported to an enlarged Brush Hollow Reservoir, located approximately 5 miles to the north. Once in Brush Hollow Reservoir, the Pleasant Valley Ditch supply will be integrated into the District's existing raw water supply system. The purchase of the Pleasant Valley Ditch water rights will not eliminate the need for BPW supply. The District's intention is to supplement a portion of the existing lease with BPW with this alternative supply of raw water and in so doing, lessen its reliance on BPW. 2. PROJECT SPONSOR The project sponsor for the water right purchase and raw water utilization system is the Penrose Water District (the District), a duly constituted and established Colorado Special District within Fremont County. The District was formed in July 1967 under Colorado Revised Statute (CRS) 32 -1- Leonard Rice Engineers, Inc. August 2006 — 1018PEN05 GMS, Inc.