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I <br /> Management's Discussion and Analysis (unaudited) <br /> IAs of and for the Years Ended December 31, 2010 and 2009 <br /> weighted to encourage higher volume consumers to limit their water use). Fees for making water tap <br /> III. connections are down $0.3 million due to fewer taps being installed due to the slow-down in <br /> construction. Non-operating revenues are down $3.5 million (or 51.7%) from 2008. Tap fee <br /> connections are down $2.2 million due to the continued slow-down in the economy and in <br /> construction. Investment income was down about $1.1 million. This is a combination of decreased <br /> I interest earnings from lower market interest rates, lower investment balances and a reduction in the <br /> unrealized gain on investments due to lower coupon rates on investments. <br /> I In 2010, operating revenues are down $0.3 million (or 2.8%) from 2009. This resulted primarily from <br /> decreased water sales. Water sales are down again as a result of a year that was somewhat cooler <br /> and wetter than normal, the slow-down in construction and of the economy and water conservation. <br /> Non-operating revenues are up about$1.0 million (or 30.5%) from 2009. Property taxes are up about <br /> $0.1 million due to an increase in assessed valuations. Tap fee connections are down $0.1 million <br /> due to the continued slow-down in the economy and construction. Investment income is stable <br /> compared to 2009. Miscellaneous income is up $0.2 million from increased royalty income on gas <br /> I wells located on land owned by the District. Gain on disposition of capital assets is up about $0.7 <br /> million from selling an excess portion of the land the District acquired in 2007 to relocate its <br /> administrative offices and operations facilities. <br /> I REVIEW OF EXPENSES <br /> (in thousands) <br /> Years ended December 31, 2010 2009 2008 <br /> IOperating expenses <br /> Water supply and treatment $ 1,879 $ 2,009 $ 1,968 <br /> Transmission and distribution 2,945 2,926 2,931 <br /> Engineering and construction 1,088 1,269 1,146 <br /> Administration 1,089 1,104 1,081 <br /> I Finance and accounting 1,056 1,022 977 <br /> Depreciation 5,192 4,890 4,591 <br /> Total 13,249 13,220 12,694 <br /> I Non-operating expenses <br /> Interest expense 1,740 2,148 2,293 <br /> County treasurer's fees 17 14 13 <br /> IAmortization of bond issue costs 19 15 16 <br /> Total 1,776 2,177 2,322 <br /> Total expenses $ 15,025 $ 15,397 $ 15,016 <br /> IFor 2009 the District's operating expenses increased by about$0.5 million or 4.1% when compared to <br /> 2008. $0.3 million of this amount is additional depreciation expense on recent asset additions. The <br /> I majority of the remainder of the increase was for engineering work related to determining the current <br /> and future water needs and resources of the District. <br /> In 2010, the District's overall operating expenses did not increase significantly from 2009, however, <br /> I the composition of expenses varied from the prior year. Expenses in water supply and treatment were <br /> down about $0.1 million from 2009. This reduction consisted of lower personnel costs from reduced <br /> staffing and lower treatment chemical costs due to treating lower volumes of water. Engineering costs <br /> I were down $0.2 million from a lower level of engineering effort related to future water supplies. <br /> Depreciation expense increased $0.3 million resulting from capital assets additions in the last several <br /> I <br /> Ute Water Conservancy District 5 <br /> I <br />