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Loan Feasibility Study for Raw Water Acquisition and Utilization Page 38 A review of expenditures made by the District covering the last six year period shows reasonable consistency within most categories. Of note, the Plant and Distribution column contains raw water lease payments made by the District to BPW. The District's source of water supply is provided through BPW. Water delivery is realized by the District by way of the Beaver Park Ditch that is owned by BPW. The District obtains the majority of its raw water supply from the diversion off the Brush Hollow Supply Canal with a limited amount taken directly from the Brush Hollow Reservoir owned by BPW. BPW functions as a Colorado non - profit municipal ditch and reservoir company. The District entered into an agreement with BPW on March 6, 1990 and amended said agreement in 1997. The agreement as currently drafted extends through December 31, 2020. The agreement contains a provision for reviews and negotiations between the parties concerning the rates charged by BPW for the lease every five years. The lease rate was renegotiated in 2004 for the 2005 through 2009 five -year cycle. Two expenditure categories represent anomalies to some degree. The first is the Capital Acquisition column. The significant increase in expenditures shown in 2005 represent $3,005,217 of cost associated with the Goodwin Ranch and associated water rights acquisition. In 2006 the $4+ million capital acquisition budget includes $4,085,000 of expenditures projected to occur within the Enterprise Activity Fund as a result of the initial implementation of the overall project funded, in part, by CWCB. As discussed in regard to the revenue table, this expenditure will be deferred into 2007 when funding is finalized. These activities in the Capital Acquisition area have had a direct impact on debt service, the second area that is anomalous. In 2005, the majority of the increase in debt service payments reflects an interest only payment made to Fremont Bank to service the interim loan associated with the Goodwin Ranch and associated water rights. The 2006 debt service increase is again skewed upward by projected interest only payments to Fremont Bank for the interim loan associated with the Goodwin Ranch and associated water right acquisition. Thus to fairly characterize normal expenditures in the 2005 and 2006 periods, these major capital acquisition activities have been extracted from the Total Expenditure column excluding depreciation. Extracting the Goodwin Ranch acquisition from the Capital Acquisition column and the subsequent Total expenditure column Without Depreciation reduces expenses, even with the new interest only payment, to $976,087. That total compares favorably with the $1,140,266 of ordinary income realized by the District in 2005. A similar approach has been taken in 2006 with the elimination of $4,085,000 of project related expenditures from the Capital Acquisition column. Such serves to reduce the District's total expenditures excluding depreciation, but including the escalated interest expenses, to $1,007,297. That figure again compares favorably with the projected total income in 2006, excluding grants and loans, of $1,047,061. Overall the District has maintained a consistent position of revenues exceeding, and in some years significantly exceeding expenditures. This basic rule of thumb has remained constant even in light of severe water restrictions and a tap fee moratorium. As indicated, based upon a review of the revenue and expenditure tables, the District has consistently generated excess revenues over expenditures within its various areas of activity. Table Leonard Rice Engineers, Inc. August 2006 — 1018PEN05 GMS, Inc.